Chinese tourism boom, record car sales: CommSec's Craig James
GUEST OBSERVER
In March, China (including Hong Kong) passed New Zealand as Australia’s largest source of tourists. And that gap widened in April. Over the past year 1.35 million Chinese visited our shores. This is the new boom – the tourism boom – and again it is driven by China.
Tourism Research Australia found that international visitors spent $36.6 billion in 2015 with China spending $8.3 billion or almost $8,000 per person. Spending was up by 18 per cent on a year earlier – the strongest growth in 14 years. And the latest data on tourist arrivals suggests that the spending by international visitors continues to lift, providing valuable momentum for the economy.
It has been a stellar week for the economy. Data has showed the economy growing at the fastest pace in 31⁄2 years; building approvals hit fresh record highs; car sales are at record highs; and tourist arrivals hit fresh record highs. The economy is firing on all cylinders. Clearly any suggestion that rate cuts are needed to lift a sagging economy is very much misplaced. The Reserve Bank cut rates in May – and still may cut rates again – on the premise that the economy can record even faster growth without sparking higher inflation.
What do the figures show?
Overseas arrivals & departures
Tourist arrivals rose by 1.2 percent to record highs in April. Tourist departures fell 3.4 percent in April from record highs. Arrivals are up 11.6 percent on the year with departures up 2.2 percent.
Tourists from greater China (China and Hong Kong) totalled 119,800 in April (mainland China 100,900, Hong Kong, 18,900), ahead of New Zealand (110,300).
Tourist arrivals from mainland China and Hong Kong rose to a record 1,350,000 over the past year (up 21.6 per cent over the year) ahead of tourists from New Zealand (1,313,400 visitors over the past year).
Over the past year, net permanent and long-term arrivals to Australia totalled 270,230 – the lowest level in nine years (May 2007).
Over the year to April, 33,500 Aussies visited Pakistan, up 33.5 per cent on the 25,200 visitors in the year to April 2015. Also 329,000 Aussies visited Japan over the past year, up 26.6 per cent over the year.
New Car Sales
According to the Federal Chamber of Automotive Industries there were 96,672 new cars sold in May. Over the year to May a record 1,172,402 new cars were sold. Annual growth of 4.3 percent is the strongest in 31 months.
In May alone, passenger car sales fell by 5.8 per cent on a year ago to 38,222; sports utility vehicles (SUV) sales rose 11.4 per cent to 36,230; light truck sales rose 10.6 per cent to 19,373 and heavy truck sales rose 5.9 per cent to 2,847.
Sales across states in May 2016 on May 2015: NSW (+6.0 per cent); Victoria (+3.5 per cent), Queensland (+1.3 percent), South Australia (+9.6 percent), Western Australia (-5.0 percent), Tasmania (+4.3 percent), ACT (+8.9 percent) and Northern Territory (+3.1 percent).
Car affordability
New vehicle sales are rising because car affordability stands at record highs. The CommSec car affordability measure shows that someone on the average wage has to work 23.8 weeks to buy a new Ford Falcon auto sedan. That is around 2 weeks fewer than two years ago. And five years ago, the same worker would have had to work an extra seven weeks to buy the same car.
Performance of Services
The Performance of Services index rose by 1.8 points to 51.5 in May. A reading above 50 suggests expansion of the services sector.
The Australian Industry Group noted: “Of the five activity sub-indexes in the Australian PSI®, sales (51.7 points) and stocks (51.2 points) lifted into positive territory in May while new orders (55.3 points) continued its expansion. Deliveries (49.1 points) and employment (49.1 points) were both stable to slightly negative.”
Four of the nine services sub sectors were stable or expanded in May. What is the importance of the economic data?
The Australian Bureau of Statistics releases data on overseas arrivals and departures each month – an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.
The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
The Australian Industry Group compile the Performance of Services Index (PMI) each month. The Australian PSI is the Australian equivalent of the US ISM services gauge. The PSI is one of the timeliest economic indicators released in Australia. The PSI is useful not just in showing how the services sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.
What are the implications for interest rates and investors?
In 2015 an estimated 120 million Chinese travelled overseas. Australia’s share was just over a million tourists. So there is scope for significant growth but it will require more transport and accommodation capacity being put in place.
Another month, another record high for the car industry. New vehicle sales hit new highs in the year to May and it is clear that a key reason for the strength is the fact that cars have never been more affordable.
The Reserve Bank policymakers will find it harder to cut rates in coming months. That doesn’t mean that it’s impossible, rather the Reserve Bank will need to be more active explaining the change.
Craig James is the chief economist at CommSec.
