The accompanying report from Westpac's Senior Economist Matthew Hassan noted that more than one-third of the respondents surveyed had recalled noticing media reports last week pertaining to 'economic conditions' — the highest level of recall in 3 years — that had generally been perceived as weak, likely in reference to the reporting of a 'per capita recession'. The GDP figures and media reporting clearly impacted sentiment, with Westpac's analysis highlighting that the responses collected after the National Accounts were released fell by some 8% compared to those obtained pre-release.
Notably, consumers are becoming more risk averse with two-thirds of respondents nominating paying down debt, superannuation accounts, and bank deposits as the best place for their savings. The household saving ratio ticked up slightly in Q4's National Accounts, with the detail from this survey pointing to a further increase given that views towards family finances over the next 12 months and compared to a year ago have slumped to below long-run average levels. Increased saving, though coming off a very low base, would be a significant headwind for consumption growth.
Views towards the housing market remain mixed. Expectations for house prices fell to a new record low, with around 1 in 2 consumers anticipating prices in New South Wales and Victoria to fall over the next 12 months. However, falling house prices and weakening expectations continue to lift sentiment towards purchasing a dwelling, though Westpac's analysis noted that affordability was still likely to be a relevant concern.
The National Australia Bank's (NAB) Business Survey for February showed a weakening in both conditions and confidence to below-average levels. The business conditions index fell by 3 points to a reading of +4, with declines for the sub-components of profitability (-4 points to +1) and trading (-2 points to +8). However, the positive was that the employment index remained steady at +5, with NAB economists indicating that this was consistent with employment growth of around 19,000 jobs per month, which while lower than in 2018 would be sufficient in preventing the nation's unemployment rate from rising. Meanwhile, business confidence is still assessed as positive, though it deteriorated over the second half of 2018 and now into 2019.
Also of significance was that the aggregate capacity utilisation measure, which can provide an insight into firms' current output and future demand for labour and capital, continued its easing trend that was noticeable over the second half of 2018 and now sits a touch below its average level. This points to risks around the outlook for employment growth and business investment.
It appears that the weakening in sentiment was not only limited to consumers and businesses. As our chart of the week shows, the yield on Australian 10-year Commonwealth Government Bonds fell to a 2½-year low this week, which takes it to around its level from mid-2016 when the Reserve Bank of Australia (RBA) was lowering its cash rate. Though yield movements can be driven by a broad array of factors, the decline since the turn of the year has been influenced by a deterioration in market sentiment for the outlook in Australia in line with the 'bringing forward' and firming of expectations for RBA rate cuts.
Chart of the week
The week's other main data release was January's update for housing finance (read our analysis here). Both loan approvals to owner-occupiers and the total value of lending commitments continued to contract in the month as tight credit conditions and declining property prices weigh on demand. The contraction has been sharpest in the investor segment with lending at its lowest level since late 2011 and down by nearly 30% over the year compared to a 17% decline from owner-occupiers.
Looking overseas, it was another turbulent week regarding Brexit, though developments landed largely as markets had expected them to with the House of Commons voting in favour of extending the Article 50 period — in effect a delay to the March 29 withdrawal date, though that still requires the unanimous approval of the European Union (EU). The length of that delay is yet another source of uncertainty; it could be until June 30 if MP's agree to a Brexit deal by March 20, but failing that it could last much longer — potentially by up to a year according to media reports quoting EU President Donald Tusk — in order to allow the UK time to re-work its strategy and to garner the necessary level of support to reach a consensus.
To recap events from earlier in the week, PM Theresa May's Brexit deal was voted down by the House at its second 'Meaningful vote', this time by a margin of 391 to 242. The following day, MP's rejected the notion of the UK withdrawing from the EU under a no-deal scenario, by 312 to 308 in a non-binding vote. Brexit will remain in the headlines next week with EU leaders meeting for a summit next Thursday, the day after the March 20 date specified as the deadline for the UK parliament to reach an agreement before moving towards gaining an extension.
In the US, the data flow this week was mostly positive with retail sales, durable goods orders and construction spending for January all coming in stronger than expected. However, GDP growth for Q1 appears likely to be soft, with the Atlanta Fed's GDPNow model currently estimating output growth of 0.4% in the quarter. This outcome has the annualised pace of growth on track to slow by around 1ppt to 1.6%. Meanwhile, February's Consumer Price Index was consistent with muted inflationary pressures as per the Federal Reserve's description. Annual inflation on a headline and core basis slowed by 0.1ppt to 1.5% and 2.1% respectively.
The data highlight from Europe this week was industrial production for January lifting by a sharp 1.4%, albeit coming after notable declines in the preceding two months. The underlying detail showed that production in Italy and France increased strongly in the month, though in Germany declined by 0.9% having now fallen in 4 of the past 6 months. Also, inflation remained soft in February as the core measure eased to 1.0%Y/Y while a lift in energy prices saw the headline read ticking up to 1.5%.
Markets were boosted late this week when China's Premier Li reaffirmed that authorities in Beijing will provide support the domestic economy against the headwinds from a slowing outlook and trade tensions. The measures to be implemented will include tax cuts and infrastructure investment, with further reductions in banks' reserve requirements also likely. Last week, Beijing announced a lower growth target for 2019 of 6 to 6.5% from 'around 6.5%'.
Also of significance was that the aggregate capacity utilisation measure, which can provide an insight into firms' current output and future demand for labour and capital, continued its easing trend that was noticeable over the second half of 2018 and now sits a touch below its average level. This points to risks around the outlook for employment growth and business investment.
It appears that the weakening in sentiment was not only limited to consumers and businesses. As our chart of the week shows, the yield on Australian 10-year Commonwealth Government Bonds fell to a 2½-year low this week, which takes it to around its level from mid-2016 when the Reserve Bank of Australia (RBA) was lowering its cash rate. Though yield movements can be driven by a broad array of factors, the decline since the turn of the year has been influenced by a deterioration in market sentiment for the outlook in Australia in line with the 'bringing forward' and firming of expectations for RBA rate cuts.
Chart of the week
The week's other main data release was January's update for housing finance (read our analysis here). Both loan approvals to owner-occupiers and the total value of lending commitments continued to contract in the month as tight credit conditions and declining property prices weigh on demand. The contraction has been sharpest in the investor segment with lending at its lowest level since late 2011 and down by nearly 30% over the year compared to a 17% decline from owner-occupiers.
— — —
Looking overseas, it was another turbulent week regarding Brexit, though developments landed largely as markets had expected them to with the House of Commons voting in favour of extending the Article 50 period — in effect a delay to the March 29 withdrawal date, though that still requires the unanimous approval of the European Union (EU). The length of that delay is yet another source of uncertainty; it could be until June 30 if MP's agree to a Brexit deal by March 20, but failing that it could last much longer — potentially by up to a year according to media reports quoting EU President Donald Tusk — in order to allow the UK time to re-work its strategy and to garner the necessary level of support to reach a consensus.
To recap events from earlier in the week, PM Theresa May's Brexit deal was voted down by the House at its second 'Meaningful vote', this time by a margin of 391 to 242. The following day, MP's rejected the notion of the UK withdrawing from the EU under a no-deal scenario, by 312 to 308 in a non-binding vote. Brexit will remain in the headlines next week with EU leaders meeting for a summit next Thursday, the day after the March 20 date specified as the deadline for the UK parliament to reach an agreement before moving towards gaining an extension.
In the US, the data flow this week was mostly positive with retail sales, durable goods orders and construction spending for January all coming in stronger than expected. However, GDP growth for Q1 appears likely to be soft, with the Atlanta Fed's GDPNow model currently estimating output growth of 0.4% in the quarter. This outcome has the annualised pace of growth on track to slow by around 1ppt to 1.6%. Meanwhile, February's Consumer Price Index was consistent with muted inflationary pressures as per the Federal Reserve's description. Annual inflation on a headline and core basis slowed by 0.1ppt to 1.5% and 2.1% respectively.
The data highlight from Europe this week was industrial production for January lifting by a sharp 1.4%, albeit coming after notable declines in the preceding two months. The underlying detail showed that production in Italy and France increased strongly in the month, though in Germany declined by 0.9% having now fallen in 4 of the past 6 months. Also, inflation remained soft in February as the core measure eased to 1.0%Y/Y while a lift in energy prices saw the headline read ticking up to 1.5%.
Markets were boosted late this week when China's Premier Li reaffirmed that authorities in Beijing will provide support the domestic economy against the headwinds from a slowing outlook and trade tensions. The measures to be implemented will include tax cuts and infrastructure investment, with further reductions in banks' reserve requirements also likely. Last week, Beijing announced a lower growth target for 2019 of 6 to 6.5% from 'around 6.5%'.
