Business Confidence

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<p>EXPERT OBSERVER</p>
<div>Consumer confidence rose +1.2 per cent last week to 93.5, according to ANZ-Roy Morgan, a 13-week high.</div>
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<div>However, confidence levels remain well below the monthly average since 1990 of 112.6, and even still a reading of 93.5 is equivalent to what Australia experienced through the financial crisis. </div>
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<div><em>Source: ANZ-Roy Morgan</em></div>
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<div>On March 29 the COVID shock saw consumer confidence reading hit the lowest level in half a century at 65.3, but it has since rebounded by 43 per cent. </div>
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<div>Curiously confidence levels in Melbourne have picked up this week to a level 'a touch below neutral' -  possibly on optimism of restrictions being eased - and confidence levels in Melbourne are now higher than in Sydney. </div>
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<div><strong>RBA update</strong></div>
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<div>The RBA put out some state level payroll jobs figures this week which showed that jobs have been steadily picking up elsewhere, but not in Victoria. </div>
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<p>However, the payrolls recovery has stalled this week, and indeed it cannot really take hold until the Victorian economy sees restrictions broadly eased. </p>
<div>Separate analysis from UBS highlighted how small businesses have disproportionately felt the pain this year, and this is reflected in hiring figures relative to large businesses. </div>
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<div>This has raised the prospect of a potential further reduction of interest rates, as discussed today by the RBA’s Guy Debelle.</div>
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<div>The RBA has now expanded its balance sheet significantly, almost doubling from from $170 billion in February to $300 billion, through its various policy measures. with a further 'decently large' expansion to come. </div>
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<div>In the money markets swap rates are now at record lows. </div>
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<div>Banks are now allowing their offshore funding to roll off, which has reduced the share of offshore bonds funding, and this has been replaced by take-up of the cheaper Term Funding Facility (TFF). </div>
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<div>It's interesting to note that the Chinese economy has come surging back from its 10 per cent decline in the March 2020 quarter, to the extent that its output is now greater than it was at the end of 2019, as targeted stimulus measures have successfully bolstered production.</div>
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<div>Australia has gone down a different route, focusing instead on income support, to the extent that household income actually <em>increased</em> over the previous quarter, which is a very unusual outcome for a recession.</div>
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<div>This was driven by a range of factors including lower interest rates, super withdrawals, mortgage and rent deferrals, and all of the various government stimulus measures (including JobKeeper payments, and JobSeeker). </div>
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<div>No wonder them Harvey Norman shares have come roaring back! </div>
<p><strong>PETE WARGENT</strong><em><span> </span>is the co-founder of AllenWargent property buyers and a best-selling author and blogger </em></p>
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Consumer confidence hits three month high: Pete Wargent

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<p><span>The 2019 March quarter ANZ-</span><span>Property Council survey shows that confidence in Australia’s housing </span><span>sector has fallen further than in 2018 and is now at its lowest level since the survey commenced in 2011.</span></p>
<p>It is not surprising given that many indicators are around their worst levels in many years.</p>
<p>"Housing prices, credit, auction results, days on market and vendor discounts are all weak," the report noted adding there is little sign of improvement.</p>
<p>"The ANZ-Property Council survey is consistent with these other indicators and suggests we are set for an extended period of weakness in the housing sector," it noted.</p>
<p><img src="https://www.urban.com.au/images/2019/1/10/ANZ-Prop%20Counc%20G1.JPG" alt=""></p>
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<p>NSW's property industry confidence has dropped to one of the lowest in the nation, according to the latest ANZ/Property Council Survey.</p>
<p>The largest decline in confidence came in Queensland.</p>
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<p>Property Council NSW Executive Director Jane Fitzgerald said sentiment is down.</p>
<p>"With a state and federal election just around the corner, I don’t think we will see it rebound in the short term despite stronger results in some sectors," she said.</p>
<p>“The industry is facing a lot of uncertainty and change, particularly over the past twelve months.</p>
<p>"We have seen the introduction of Special Infrastructure Contributions, increasing 7.11 levies, the changing of key policies such as the Medium Density Housing Code, the updating of Local Environmental Plans, and the review of approaches to planning in areas such as Ryde – that’s a lot of change for an industry."</p>
<p>“With a flat residential market, there is a real risk that this moving feast of policy changes will have a detrimental effect on economic growth and jobs. The 400,000 people who work in the property industry in NSW rely on a healthy industry for their economic wellbeing," she concluded.</p>
<p>David Plank, the ANZ Head of Australian Economics, said the survey gives a softer reading on the health of Australia’s property sector.</p>
<p>"Survey respondents report that the availability of finance will worsen further over the coming year, which is a central feature of our housing outlook.</p>
<p><img src="https://www.urban.com.au/images/2019/1/10/ANZ-Prop%20Counc%20G2.JPG" alt=""></p>
<p>"In turn, respondents also expect housing prices and construction activity will continue to ease.</p>
<p>"We think prices will fall through to 2020, and expect to see declines <a href="https://www.urban.com.au/expert-insights/buying/92798-anz-revise-forecast-to-20-percent-house-price-declines-in-sydney-and-melbourne" target="_blank">around 15–20% peak to trough</a> for Sydney and Melbourne.</p>
<p>"We also think the decline in housing construction will accelerate through 2019 and 2020, as the current backlog of work is gradually completed.</p>
<p>"The survey also suggests that firms expect the next interest rate movement to be higher, though the conviction in this expectation has dropped from the last survey.</p>
<p>"With risks around global trade tension and questions over the sustainability of domestic household spending, we think any RBA move is still some time off.</p>
<p>"Overall, though, the forward work schedule is solid and employment intentions are holding up.</p>
<p>"But clearly sentiment in the property sector is being challenged by a number of significant headwinds.," Plank said.</p>
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Little sign of optimism in the residential sector as confidence falls to lowest levels: ANZ/Property Council

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<p>Business confidence in the WA property sector has climbed to its highest level since 2014, according to the ANZ/Property Council Survey for the June quarter 2017, which revealed a 20-percentage point increase in the confidence index.</p>
<p>“These results point to an economic turnaround in WA led by proposed investments by non-mining businesses,” Property Council WA Executive Director Lino Iacomella said.</p>
<p>“The improvement in industry confidence is due to expectations that improved national economic growth will flow to WA, and a lift in forward work schedules and staffing numbers. </p>
<p>A raft of major projects is proposed in WA, including shopping centre expansions, hotels and new infrastructure such as the Forrestfield-Airport Link.</p>
<p>The retail and retirement living sectors continue to lead the way with continued growth expectations.</p>
<p>Other sectors in the property industry are continuing to show declining growth expectations, however the outlook has improved with house price growth expectations close to stabilising. </p>
<p>The property industry is looking forward to working with the new McGowan state Government to progress economic reforms, fast-track infrastructure planning and cut red-tape to ensure the major construction projects proposed for WA get off the ground,” Mr Iacomella said.</p>
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Confidence returning to WA property industry

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<p>GUEST OBSERVER</p>
<p>The December NAB business survey showed business confidence remaining reasonable at +6 and businessconditions improving significantly to a strong reading of +11.</p>
<p>The bounce in conditions reflected strength in trading, profits and new orders.</p>
<p>Business continues to remain more confident than are consumers, but the rebound in business conditions adds to confidence that the September quarter downturn in GDP reversed in the December quarter.</p>
<p class="x_MsoNormal"><a href="https://www.propertyobserver.com.au/images/2017/02/01/image006.png" target="_blank">Click to enlarge</a></p>
<p class="x_MsoNormal"><img src="https://www.urban.com.au/images/2017/02/01/image006.png" alt=""></p>
<p class="x_MsoNormal">Source: Westpac, NAB, AMP Capital</p>
<p class="x_MsoNormal">Meanwhile, private credit rose a stronger than expected +0.7 percent <span id="0.6023802033159882" class="highlight">in</span> December or 5.6 percent year on year. </p>
<p class="x_MsoListParagraph">The <span id="0.19327247748151422" class="highlight">bounce</span> <span id="0.08058031392283738" class="highlight">in</span> credit growth from +0.5 percent mom <span id="0.4836013962049037" class="highlight">in</span> November was driven by stronger <span id="0.4131828281097114" class="highlight">lending</span> <span id="0.2442040389869362" class="highlight">to</span> <span id="0.799539064290002" class="highlight">business</span>es, which is potentially a good sign. </p>
<p class="x_MsoNormal">While housing credit growth was unchanged at 0.5 percent/mom or 6.3 percent/yoy <span id="0.3568573796655983" class="highlight">in</span> December, what is concerning is a continued deceleration <span id="0.41784490551799536" class="highlight">in</span> owner occupier housing credit (<span id="0.5229188892990351" class="highlight">to</span> +0.4 percent/mom) relative <span id="0.9022720851935446" class="highlight">to</span> <span id="0.7141850041225553" class="highlight">in</span>vestor credit (which rose +0.8 percent/mom). Over the last three months <span id="0.3730766784865409" class="highlight">in</span>vestor housing credit rose at an annual rate of 9 percent <span id="0.8393944983836263" class="highlight">and</span> is now rapidly approaching APRA’s 10 percent threshold.</p>
<p class="x_MsoNormal">It is <span id="0.8709192702081054" class="highlight">in</span>creasingly clear that the dampening impact of APRA’s 2015 macro prudential tightening has worn off <span id="0.09559610136784613" class="highlight">to</span> a significant degree. With household <span id="0.3539372014347464" class="highlight">in</span>come growth <span id="0.7710073834750801" class="highlight">in</span> the economy running well below 10% yoy <span id="0.07574582751840353" class="highlight">and</span>the Sydney <span id="0.6721861795522273" class="highlight">and</span> Melbourne <span id="0.8575597342569381" class="highlight">property</span> markets <span id="0.7601068657822907" class="highlight">continuing</span> <span id="0.8739038927014917" class="highlight">to</span> run <span id="0.9272325034253299" class="highlight">to</span>o hot <span id="0.6534713262226433" class="highlight">in</span> the face of ultra-low <span id="0.46389276324771345" class="highlight">in</span>terest rates there remains a case for APRA <span id="0.7982982180546969" class="highlight">to</span> further lower the 10 percent growth threshold for <span id="0.04621078143827617" class="highlight">property</span> <span id="0.7070795088075101" class="highlight">in</span>vestor credit.</p>
<p class="x_MsoNormal"><a href="https://www.propertyobserver.com.au/images/2017/02/01/image009.png" target="_blank">Click to enlarge</a></p>
<p class="x_MsoNormal"><img src="https://www.urban.com.au/images/2017/02/01/image009.png" alt=""></p>
<p class="x_MsoNormal"> </p>
<p class="x_MsoNormal"><em><span><a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a></span> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.</em></p>
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