Unit approvals lead building approvals decline in October: Shane Oliver

EXPERT OBSERVER

Dwelling building approvals fell an as expected 1.5% in October, with unit approvals down 5.4%.

The trend in alterations and additions is falling at around 0.1% a month.

The trend in non-residential approvals is also falling.

The downtrend in dwelling building approvals and in the value of alternations and additions points to gradual decline in dwelling investment over the year ahead.

Meanwhile in other data released today

• September quarter business indicators were on the soft side with company profits up 1.9%qoq (against market expectations for a 2.4% gain), the wages bill rising just 0.9%qoq (and don’t forget this allows for wages and employment growth), sales volumes slowing to just 0.1%qoq and flat inventories pointing to a detraction from growth of 0.3 percentage points.

Taken together this points to a bit of a softening in growth after a few stronger quarters and suggests downside risks to our September GDP growth forecast of 0.6%qoq, although there is data on net exports and public demand to be released tomorrow. 

Finally

• ANZ jobs ads fell 0.3% in November with annual growth slowing to 2.3%yoy pointing to softer jobs growth ahead.
• The Melbourne Institute’s Inflation Gauge for November basically stalled with headline inflation slowing to 1.6%yoy and underlying inflation slowing to just 1.3%yoy suggesting that inflation may be actually slowing this quarter.

Implications for interest rates

Along with CoreLogic data showing ongoing falls in house prices, today’s data adds to our expectation that RBA rate hikes are at least two years away and that there is rising risk that the next move by the RBA will be a rate cut rather than a rate hike.

SHANE OLIVER is Head of Investment Strategy and Chief Economist at AMP Capital.