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Grocery prices in focus; Home sales lift
Retail price data; New Vehicle Sales; New Home Sales; PSI
- The Bureau of Statistics has released March quarter price data for a range of consumer products, notably grocery items. While bananas rose in price by almost 90 per cent, milk fell by
almost 15 per cent. Overall, 19 of the 51 items were cheaper in the quarter.
- In April, 74,214 vehicles were sold, down by 8.8 per cent compared with a year ago. In seasonally adjusted terms CommSec estimates that sales fell by 1.0 per cent in the month.
- New home sales
rose by 4.3 per cent in March after rising by 0.6 per cent in February.
Private sector house sales rose by 5.8 per cent in March while
multi-unit sales dropped by 10 per cent.
New home sales are still down 5.1 per cent on a year ago.
- The Performance of Services index
rose by 5 points to 51.5 in April – marking the first expansion in the
sector in six months. Key sub indices, sales and new orders contracted
at a slower
pace, while employment recorded its best reading in over six years.
What does it all mean?
- All the data today points to an economy
that seems to be attempting to recover from the rapid rate hikes of last
year. The 4.3 per cent rise in new homes sales is a welcome sight given
that activity levels have been subdued
over the past year.
- Despite the
pickup in home sales, the housing sector is in for a extended period of
consolidation. Housing finance - a good indicator of future home sales -
has come of the boil and property prices recorded its biggest quarterly
fall in years over the March quarter. In addition new home sales are
still down over 5 per cent on a year ago.
- Fundamentally,
there are good reasons for home building to increase. The rental market
is still tight and population growth is healthy. And with the labour
market remaining strong, investor housing demand is likely to pickup
pace in the second half of 2011.
- The
services sector is growing for the first time in six months. However
you cannot really read too much into what on face value looks like an
encouraging result. Especially given that the service sector has been
doing it tough
over the past year and the latest improvement comes after a bout of
serious weakness. In addition key sub indices like sales and forward
orders are still contracting, albeit at a slower pace.
- Official
interest rates have been on hold for six months and no doubt the lack
of rate hikes is allowing businesses and consumers to get back to
basics. However there are a couple of factors that will ensure activity
remains
relatively subdued in the near term, including a stronger currency,
conservative buying behaviour of consumers and businesses and the added
pressures on the household budget.
- Businesses
are under substantial pressure at present with costs edging higher and
consumers driving hard bargains. Input costs and wages remain elevated
but selling prices are only modestly rising. In fact the wages sub index
of the service survey recorded its highest reading in almost three
years. A further period of interest rate stability would clearly help
the situation.
- The general
perception is that food prices only go one way – and that’s up. But
surprisingly almost 40 per cent of commonly purchased weekly retail
items like grocery items, alcohol and petrol actually fell in price
during the
March quarter. And if it wasn’t for the floods and cyclone, the
proportion of items falling in price would have been even higher. It
certainly pays to look more closely at prices of the goods we buy,
rather than to just take the advice of so-called “experts”
that inflation is on the rise.
- The
slide in car sales in April cannot be looked at on its own given the
timing of Easter. This year Easter occurred super late compared with
last year coupled with a five day long weekend. Unfortunately seasonal
adjustment
programs find it difficult to account for the “Easter effect”, so it may
result in super-strong results in March followed by a weaker result in
April. Clearly it will be a case of adding the two months together to
find out what is happening. Overall CommSec
estimates car sales fell by 1 per cent in seasonally adjusted terms in
April.
What do the figures show?
Quarterly retail prices:
- The Bureau of
Statistics has released average prices for 51 key consumer products for
the March quarter, ranging from bananas to beer and even petrol. Using
averages for the eight capital cities, CommSec has
calculated that 32 of the 51 items rose in price during the quarter
while the remaining 19 items actually became cheaper. The biggest price
increase was by bananas (up 89.8 per cent), followed by oranges (up 19.3
per cent) and onions (up 12.5 per cent). At
the other end of the scale, the price of milk fell by 14.5 per cent in
the quarter, followed by baked beans (down 7.4 per cent) and tinned
peaches (down 4.2 per cent).
- Other
notable price changes: petrol (up 8.3 per cent), packaged beer (down
0.9 per cent), bread (down 1.1 per cent), T-bone steak (down 2.4 per
cent), free range eggs (down 3.3 per cent).
Car sales
- The Federal Chamber of
Automotive Industries reported that 74,214 new cars were sold in April,
down 8.8 per cent on a year ago. Passenger car sales were 11.9 per cent
lower than a year ago, 4WDs were down 5.6
per cent and “other vehicles” (trucks, utes etc) were down 3.6 per cent.
New home sales
- The Housing Industry
Association reported that new home sales rose by 4.3 per cent in March
after a 0.6 per cent rise in February. Private sector detached house
sales rose by 5.8 per cent in March while multi-unit
sales dropped by 10 per cent.
- Across
the states detached new house sales increased by: 13.5 per cent in New
South Wales, 11.1 per cent in Queensland, 3.6 per cent in Victoria, and
3.1 per cent in Western Australia. Sales fell by 6.4 per
cent in South Australia
- The Housing Industry Association noted that “The volume of new home sales remains subdued, within which the stronger result for March is certainly a welcome outcome.”
Performance of Services
- The Performance of Services
index rose by 5 points in April to 51.5, marking the first expansion in
the sector in six months. The key 50.0 level separates expansion from
contraction. Sales and new orders
contracted at a slower pace, while employment recorded its best reading
in over six years.
- Selling
prices rose modestly while wages accelerated sharply with the sub index
recording its highest reading in wages and selling prices were higher.
What is the importance of the economic data?
- The Federal Chamber of Automotive Industries release figures on new car sales at the start of each month. The data is useful in gauging consumer spending behaviour.
- The Housing Industry Association
releases data on the sales of new homes each month. The HIA collects
the data each month from a sample of Australia's largest 100 home
builders.
- The Performance of Services
index is released by Australian Industry Group and the Commonwealth
Bank each month. The PSI is designed to provide a guide to conditions in
retail, financial and other service sectors.
What are the implications for interest rates and investors?
- Interest rates are
already restrictive and the Reserve Bank would be best staying on the
interest rate sidelines in the near term – especially given that
inflation is well contained at present. Food inflation
is an issue in other parts of the world however it is still well
contained domestically. The floods in Queensland together with Cyclone
Yasi have led to price rises for a select number of fruit and vegetable
products, but prices have already started to fall.
- The
cumulative rate hikes, hangover effect from the expiry of the first
home buyer grant and appreciation in property prices has given potential
home buyers a valid reason to be more circumspect about future
purchases. However the rebuilding phase in flood ravaged towns is likely
to support construction activity in the midterm.