Australia's Building Approvals and Motor Vehicle Sales Indicate Reduced Economic Momentum

Strategic Insights -

The Reserve Bank of Australia's decision to maintain the overnight cash rate at 5.50 percent has been vindicated by recent building approvals and motor vehicle sales figures. The number of residential building approvals fell by 8.0 percent in August, defying expectations of a marginal increase, with minor gains in South Australia and Western Australia unable to offset falls in other states. Approvals for new houses reached a six-month low, while approvals for other dwelling types posted their third consecutive fall. Meanwhile, demand for motor vehicles remained high in September, driven by a surge in sales of small, fuel-efficient cars, but the overall trend is still flat. These figures suggest that the sub-par growth in consumer spending seen since mid-2004 will continue over the coming few quarters.

Key Takeaways:

  • The number of residential building approvals fell by 8.0 percent in August, confounding expectations of a marginal increase.
  • Approvals for new houses reached a six-month low in August, reversing a rising trend evident in the first half of the year.
  • Approvals for other dwelling types posted their third consecutive fall, with a drop of 19.6 percent in August and 36.9 percent from the recent peak in May.
  • The Reserve Bank of Australia's monthly chart pack confirmed that debt servicing costs take a record bite out of household income, even more than in 1989 when mortgage rates were higher.
  • The figures suggest that the sub-par growth in consumer spending seen since mid-2004 will continue over the coming few quarters.
  • Demand for motor vehicles remained high in September, driven by a surge in sales of small, fuel-efficient cars, but the overall trend is still flat.
  • The Federal Chamber of Automotive Industries reported a 5 percent increase in sales of small, fuel-efficient cars compared to last year, but after seasonal adjustment, it is consistent with the flat trend evident for most of this year.

Statistics:

  • The number of residential building approvals fell by 8.0 percent in August.
  • Approvals for new houses reached a six-month low in August.
  • Approvals for other dwelling types posted a 19.6 percent drop in August and a 36.9 percent drop from the recent peak in May.
  • The Reserve Bank of Australia's monthly chart pack confirmed that debt servicing costs take a record 10.3% bite out of household income, even more than in 1989 when mortgage rates were higher.
  • Demand for motor vehicles remained high in September, with a 5 percent increase in sales of small, fuel-efficient cars compared to last year.
  • After seasonal adjustment, the demand for motor vehicles trend is still flat.

Sources:

  • Asia Pulse, "Building approvals and motor vehicle sales figures offer quick vindication of RBA's decision," October 5.
  • Australian Bureau of Statistics, "Building Approvals," August.
  • Federal Chamber of Automotive Industries, "Motor Vehicle Sales," September.
  • Reserve Bank of Australia, "Monthly Chart Pack," updated October 5.