Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
It was a patchy set of economic data on Wednesday, but not patchy enough to support confident expectations of one, or maybe even two, interest rate cuts this year.
Futures prices have factored in a cut in the cash rate to 1.75 per cent, from its current 2.0 per cent, around mid-year, with about a 50-50 chance of another, to 1.5 per cent, by the end of the year.
And there’s no doubt the rate-cut supporters will find something in the data.
Despite a nine per cent bounce in the number of dwelling construction approvals, the trend in home-building approvals is flat, after topping out around the middle of last year.
The trend in non-dwelling approvals – shops, hotels, offices, schools and the like – slowed sharply soon after.
Even so, the total value of approvals at the end of 2015 was running at over $300 million a month more than a year earlier.
It’s not as if the building industry faces imminent collapse.
And the flatter trend doesn’t necessarily signal generalised economic weakness – after all, approvals fell through 2014, which was followed by a year of exceptionally strong employment growth.
There’s more to economic growth than building approvals.
Another somewhat gloomy note was struck on Wednesday by the Australian Industry Group’s Performance of Services Index (PSI), which came in below 50 – which divides positive and negative survey responses – for the fourth month in a row in January.
But the PSI has been below 50 for most of the past eight years, including for five months in 2015, when jobs growth boomed.
It’s worth watching, but no reason for us all to throw our hands up in the air and give up hope.
Nor is the trade deficit reported for December, even though at $3.5 billion it is $2.7 billion wider than the previous December.
The deterioration has been largely the result of falling export commodity prices.
Export and import prices available to date suggest that after allowing for price changes, the volume of exports – like tonnes of iron ore and coal – probably outpaced imports – like numbers of cars of smart phones – in the final quarter of 2015, adding about 0.5 per cent to the economy’s growth rate as a result.
And that’s a fair bit, given that the long run average growth rate is about 0.8 per cent a quarter, and means other sources of growth – like domestic services and housing construction – don’t need to do much to ensure a strong quarter when the national accounts are released next month.
In essence, traders betting on one, maybe two, rate cuts this year are betting that the economy will slow sharply.
And there’s really no sign of that just yet.