Retail drops back after Black Friday sales spike

Merry Xmas (not)

Retail turnover fell -0.5 per cent in a dismal December for shopping, although this followed the 1 per cent Black Friday spike in November retail sales. 

Allowing for the seasonal adjustment, which next year probably needs...adjusting...retail turnover was up by a modest 2.7 per cent over the year. 

Population growth was about 1.5 per cent. 

The monthly figures naturally look dire, especially for department stores (-2.8 per cent), and clothing and footwear (-1.5 per cent). 

But the quarterly read is probably a better insight into consumer sentiment...which is to say, weak.

Volumes were up across the fourth quarter, recording a 0.5 per cent increase.

A detailed review of the retail figures can be found at the James Foster Macro View blog here. 

Recession lite?

Given the impacts of drought, catastrophic bushfires, and now the travel ban from China, it's quite possible that Australia is now in a mild recession (certainly in per capita terms, even if not in terms of headline GDP growth). 

It also seems hard to imagine that the Chinese travel ban will be extended for too long without adverse consequences. 

How long before Chinese importers start imposing more widespread force majeure notices on international LNG and other contracts? 

Yet even potential recessions don't necessarily trigger monetary easing these days, since the RBA is targeting household debt and asset prices.

Markets have priced out further central bank action until Q4 2020, with a 25bps cut priced in for November. 

Masterly inactivity, no doubt :-)

Year ahead (more of the same)

'Gentle turning point'

The RBA's Lowe spoke today on the year ahead, where the 'gentle turning point' for the Aussie economy was reiterated, and questions were fielded on fiscal policy, climate change denial, culture in financial services, meeting the unemployed, holidays (!)...

One minor additional insight ensued on fiscal policy, with perhaps a bit more flow in the post following the catastrophic bushfires.

In relevant data news, new car sales were 12.5 per cent lower than a year earlier in January, an early teaser for what looks like a potentially negative print for GDP in the first quarter of 2020 (although Lowe believes otherwise). 

It was the worst start to a year for new vehicles sales since 2009, a period through which the Aussie population has increased by more than 4 million. 

The outlook for consumption seems patchy, with more homeowners opting to pay down debt. 

The AiG construction activity gauge remained mired deeply in contractionary territory, with everything except detached house building looking awful, and business confidence (Roy Morgan) is at the lowest level in 9 years.

Aussie outlook

The RBA's central forecast remains 'for the Australian economy to expand by 2¾ per cent over 2020 and 3 per cent the following year'.

And the unemployment rate is still expected 'to remain around its current level for a while yet, before declining below 5 per cent late next year as growth picks up'.

Hopefully I'm wrong, but this does seem to be an optimistic forecast for growth, though Lowe did make some valid points on the 'long and variable lags' of monetary policy.

Other countries have successfully pushed their unemployment rates down to 4 per cent or below. 

Even New Zealand saw its unemployment rate drop to 4 per cent in the December quarter, NZ stats reported yesterday, and wages are rising, albeit with somewhat weaker underlying figures. 

Lowe acknowledged this, citing a surprise increase in Australia's participation rate.

In short, interest rates will only be cut if unemployment is trending higher and progress isn't being made towards the inflation target.

As you were, then.

The wrap

Main takeaway: don't expect any rate cuts until unemployment is trending higher.

But with GDP growth looking flat to negative in early 2020, it may not be long before the same discussion is back on the agenda. 

Bankruptcies hit a 26-year low

No stress...

Don't believe everything you read about financial stress: stress is declining and the rate cuts have been working.

In the December quarter bankruptcies fell to their lowest level since December 1994.

There were just 3,385 bankruptices in the December 2019 quarter, for a -10.6 per cent decline on the prior year.

I previously broke out the personal insolvency figures for Western Australia, but they're on the mend now too. 

Insolvencies are clearly improving, and on a per capita basis they're improving a lot.  

Good to see.

Squabbling for stock

Stock declines

It's tough yakka for Sydney homebuyers this year - there are seemingly four times as many buyers as a year earlier, but 25 per cent less stock to choose from. 

Although new listings picked up in January, Sydney recorded only 24,062 properties for sale, down from 31,993 a year earlier. 

In Melbourne there were 31,058 properties for sale at the end of January, also well down from 35,395 a year earlier. 

Sydney listings were down -24.8 per cent from January 2019, with all of the capital cities recording declines from a year earlier. 

Nationally, total stock declined to about 295,000, from 328,000 a year earlier, for a double digit decline. 

Light at the end of the tunnel

The Reserve Bank continued with its apparently endlessly upbeat assessment of the economy in today's MP decision, with unemployment expected to decline by 2021 and inflation expected to reach 2 per cent 'over the next couple of years'.

The cash rate was left on hold. 

The Aussie dollar jumped on the outlook, to 67.2 US cents.

It's easy for me to sit around blogging and pontificating, of course - with no accountability - but I've often wondered over recent years why a stronger position isn't adopted (cf. we'll do whatever it takes...).

The problem with the current stance is that, generally speaking, people simply don't believe the upbeat rhetoric or that there’s a genuine commitment to hitting the inflation target. 

Gains across the board

January housing update

Brisbane saw a +2 per cent quarterly increase in median dwelling prices, to a fresh high of $500,000 in January, with Adelaide, Hobart, and Canberra also hitting series highs. 

Sydney (+5.6 per cent) and Melbourne (+4.9 per cent) continued their strong rebound. 

Source: Corelogic

Corelogic's detailed monthly report can be found here, reporting an increase for all capital cities in January. 

Building approvals levelling out

Melbourne towers

December tends to be a quiet month for building approvals, and it was certainly that for unit approvals in Sydney (1,072) and Brisbane (194), where the long downtrend continues! 

Brisbane's rental market will continue to tighten steadily on these numbers. 

Melbourne saw a more sprightly 3,305 attached units approved in the month, driven by a fresh spate of high-rise towers, bolstering the national figures. 

Detached house approvals have found a base in Melbourne and Brisbane, but this is not yet so in Sydney or Perth.

Summing it all up this led to a flat result in December, at a seasonally adjusted 14,752 approvals, bringing the annual total for dwelling units approved down further to 172,000, about 30 per cent lower from the 2016 peak of 242,000. 

Although remaining below 2018 highs, the value of non-residential building approved has received a timely boost from the first tranche of the $1½ billion Footscray Hospital PPP rollout.

The wrap

Overall, this wasn't too bad a result, mainly thanks to Melbourne - both for residential and non-residential approval - though it's rarely wise to read too much into a December result, given the seasonal adjustment mechanism, while external events in the early part of 2020 may disrupt momentum. 

Despite the bounce for Melbourne, it seems logical that there will still be developer insolvencies in the post, given the sheer scale of the boom and downturn that has gone before. 

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ANZ job advertisements bounced, but were -11.8 per cent lower year-on-year in January.

Source: ANZ

The OIS curve shifted lower over the weekend, and markets are now favouring pricing two interest rate cuts in 2020, with bond yields hitting fresh record lows on Monday, and even the 10-year running as low as 0.9 per cent. 

Another fine mess

Bond boom

It's not easy to find much positive to yack about at the moment, with 2020 getting off to a real stinker. 

The Aussie manufacturing gauge from AiG plunged to 45.4 (from 48.3 in December), with AiG warning of worse to come. 

Delta Airlines is suspending flights from the US to China until the end of April, due to the coronavirus, while American Airlines is out of action until the end of March.

It's tricky to get a handle on how reliable the reported figures are, but clearly the virus is being treated as a very serious risk, lest it become a pandemic.

Australia's economy has massive exposure to China via resources, tourism, international students, and more.

Chinese oil demand is thought to have collapsed by 20 per cent. 

Are we therefore heading for a period negative growth?

The Aussie dollar is in freefall, and meanwhile here go bonds, with the 3-year hitting a record low of 0.56 per cent, and the 10-year following suit...

Ugh.

Travel ban

Housing update

Property prices rose +0.9 per cent in January 2020 according to CoreLogic's figures.

Pick out your home city here:

Since the election the rebound has been led by Sydney (+12 per cent) and Melbourne (+11 per cent), with Brisbane & Gold Coast recording steady gains.

However, the stock of investor lending is tracking in negative territory year-on-year with rental growth at record lows, accounting for why futures markets see no impediment to further monetary easing. 

Travel ban

Australia has now banned travel from China due to the virus outbreak, which will slice another big chunk out of the economy, especially from tourism and international students.

China accounts for the greatest number of short-term arrivals into Australia, and those arrivals also spend more than any other nationality when they're in the country. 

There will also be a further chunk cut of growth from bushfires and the drought, so it's hard to see how the Reserve Bank can do anything other than slash its growth forecasts to just 2½ per cent, with consumer confidence falling. 

The producer price figures for Q4 came in at just +0.3 per cent at final demand (and +1.4 over the year), a miss on expectations which confirms the abject lack of inflationary pressures. 

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The Reserve Bank meets on Tuesday this week, after the latest reading on building approvals, with retail and international trade figures out later in the week.