Would anyone be a Reserve Bank board member for today’s meeting?
How would you assess the strength and position of the Australian economy, which looked stronger than expected late last week, but which yesterday was shown to be less robust?
In fact there was no clearer picture of the health of the Australian economy from yesterday statistics, nor will there be from today’s which include government finance data and the June quarter balance of payments figure,s which provided some of the positive growth in the March quarter.
Like the economy itself, the figures yesterday were contradictory, suggesting sluggish demand, weak profits and little wages growth (it was in fact negative in the quarter).
Lending figures from the RBA showed that housing was the only ‘hot’ spot as business credit remained weak in July.
But deeper in the figures from the Australian Bureau of Statistics there was a surprisingly mixed message with mining profits down sharply in seasonally adjusted terms in the quarter, but manufacturing profits rose.
Having to make a call on monetary policy, and whether to signal a tightening, is what the RBA board is considering today.
Probably the easiest thing will be to change the wording of the post meeting statement to signal that policy will be tightened, then sit back for a month or two and wait for the numbers to roll in, especially the June quarter’s growth figures tomorrow.
Some of those economists plumping for an October rate rise might have to resume their seats and wait after yesterday’s figures.
There was nothing to show the economy was any stronger in the June quarter than in the three months to March.
And yet the feeling is there that conditions (especially confidence) have improved.
Home prices are up, auction clearances higher, job losses have disappeared from the media reports and the stockmarket is more solid.
The latest figures, contained in the June quarter business indicators from the ABS will help offset some of that optimism from the figures for the June quarter showing better than forecast construction spending figures released last Wednesday, and the surprisingly strong 3.3% rise in business investment on Thursday.
But inflation seemed to be mild last month, shaking off a reported rise in July and the ANZ Bank yesterday (see separate story) indicated that it was seeing a slowing in bad debts, as Westpac suggested 10 days ago.
The ABS reported yesterday that there was a 3.4% fall in inventories for the June quarter, a 1.1% fall in sales by manufacturers of sales and goods, but a solid 2.9% jump in sales by wholesalers.
Wages and salaries fell, in seasonally adjusted terms, by 1.1% for the quarter and company gross operating profits (which are worked out differently to normal profits) fell 7.8% in June from March, something the recent June 30 reports have confirmed.
In the mining industry, profits and wages fell sharply in the quarter (as was to be expected given the impact of the credit crunch and the recession). The ABS said the seasonally adjusted estimate for profits in the mining industry "fell 24.7% this quarter. The seasonally adjusted estimate fell 5.3% this quarter."
In manufacturing the estimated gross company profits (seasonally adjusted) rose 5.9% in the June quarter, while wages and salaries (seasonally adjusted) fell 2.3% this quarter.
The TD Securities-Melbourne Institute monthly inflation gauge was flat last month after a 0.9% rise in July.
That saw the survey’s annual inflation figure fall to 1.7%, from 1.9% in July, to stay below the RBA’s long-term target of 2% – 3% growth in inflation.
The core inflation reading (which excludes volatile items like petrol and fruit and vegetables) fell 0.2% in August, from July’s 1.0% rise
That saw the annual rate of core inflation fall to 2.6%, from 3.0% in July.
And figures from the RBA showed a rise in lending in July.
The RBA said total credit provided to the private sector rose by 0.2% over July after the increase of 0.1% in June.
"Over the year to July, total credit rose by 3.0 per cent,” the RBA said.
"Housing credit increased by 0.6 per cent over July, following an increase of 0.6 per cent over June.
"Over the year to July, housing credit rose by 7.3 per cent.
"The rise in housing credit over July was mostly due to growth in lending to owner-occupiers, with only weak growth in lending to investors.
"Other personal credit declined by 0.2 per cent over July, following a fall of 0.3 per cent over June.
"Over the year to July, other personal credit fell by 6.4 per cent, reflecting a large decline in margin lending.
"Business credit declined by 0.3 per cent over July 2009, following a fall of 0.6 per cent over June.
"Over the year to July, business credit declined by 0.7 per cent," the RBA said.
Not much strength there, except for housing.
