Forex Investment and Currency Trading

March housing finance

• The total number of loans to owner-occupiers fell by 6.1% in March, following a 6.8% drop in February. Prior to that housing finance was relatively resilient.
• One word of caution - it is possible that weakness in March was exaggerated because of Easter. The ABS advise that they (attempt to) adjust for this effect.
• The impression is that weakness in housing finance is genuine. There are a number of indicators pointing to a significant interest rate impact (eg retail sales, consumer confidence, auction clearance rates, dwelling approvals and house prices).
• Australians are delaying moving into the housing market as significantly higher interest rates bite. The RBA lifted official interest rates by 1.0% since August, including a 0.25% hike in March. In addition, mortgage rates have increased by more than this, as rising global capital costs are passed through.
• The question now is the full impact of higher rates. Market anticipates further near term weakness in housing finance - with commercial banks raising rates in April. That said, the rate of decline is likely to moderate. Supportive factors are labour market resilience and an expected 20% jump in the terms of trade this year - which will inject up to 3% of GDP into the economy.

Q1 wage price index

• The headline Wage Price Index surprised on the downside in Q1 2008, rising 0.9%qtr (consensus 1.1%) allowing annual growth to edge down to 4.1%yr from an equal record high of 4.2% previously.
• While below expectations, the result is unlikely to be of any great relief to the RBA nor is it likely to alter their rhetoric on the pace of wages growth. Growth of 4.1%yr remains clearly above the full history average pace of 3.6%yr.
• The public sector outcome was yet again below the private sector. The private WPI rose 0.9%qtr taking annual growth to 4.1%yr from 4.3%, but it too remains well above its long run average of 3.5%yr. The public WPI rose 0.8%qtr lowering growth to 3.9%yr from 4.1%.
• Recent editions of the RBA Statement on Monetary Policy have been drawing greater attention to broader measures of wage inflation, noting the acceleration in the National Accounts measure of average compensation to around a 5%yr pace. A broader WPI measure than the headline series is for total hourly rates of pay including bonuses, which today showed a further acceleration to a new high of 4.7%yr (vs 4.5% prev) for all sectors, with the private sector subset pace rising to a record 4.9%yr (vs 4.6% prev).
• Subdued public sector WPI outcomes are unlikely to persist near-term, with Q2 and Q3 facing upside risks from the recent Victorian decision on teachers pay, and risks of a spillover to other states.

Q1 full–time AWOTE

• Full-time AWOTE (average weekly ordinary time earnings) rose 1.1%qtr in Q1 (vs 0.8% prev) nudging annual growth to 4.8%yr from 4.7% previously. This remains above its decade average growth rate of 4.56% (0.19ppt gap), but the pace has been remarkably stable over the past year, ranging between 4.6%yr and 4.9%yr. Private sector AWOTE rose 1.2%qtr (vs 0.7% prev) taking annual growth to 5.3%yr from 5.4%, maintaining a greater gap above its long term average pace than the all sector measure - the decade average pace for private sector AWOTE is 4.69% (0.64ppt gap). Public sector AWOTE rose 0.7%qtr (vs 1.1% prev) taking annual growth to 2.8%yr from 2.9%.
• With the RBA focussing more on broader measures of wage inflation, we note that in the private sector subset of this data, growth in full-time adults total earnings (not just ordinary-time) is stronger than that for AWOTE, and further beyond its decade average pace. Private sector full-time adults total earnings rose 1.4%qtr (vs 0.6% prev) lifting annual growth to 5.6%yr from 5.5% previously, the highest since 3Q2005, although here too, growth has been stable over the last three quarters. The decade average pace for private total earnings growth is 4.53%, so the current pace is 1.11ppts above its decade average.
• AWOTE is a volatile measure of the average wage bill faced by businesses in a levels sense, and is often distorted by changes in the composition of labour in the survey sample. As such, it is not usually a good guide to short run wage inflation trends. Given the persistent tightness of the labour market, it is surprising that average weekly earnings growth has been virtually steady for the last three quarters. But in accordance with the RBA’s recent descriptions on labour costs, this data continues to show wage pressures above long-run averages, and more so for broader wage measures that include payments beyond ordinary-time earnings.