Australian dwelling approvals rise 19.9% in February

Australian dwelling approvals lifted by 19.9% in the month of February, though this came after a sharp decline of 15.1% in January, with seasonal factors likely amplifying the volatility. The result was also ahead of the escalation in the covid-19 outbreak.  

Building Approvals — February | By the numbers

• Dwelling approvals (private and public sectors) in seasonally adjusted terms lifted by 19.9% in February to 15,698; well ahead of the median forecast for a 4.0% rise. In January, approvals fell by 15.1% (revised from -15.3%). 
• In year on year terms, approvals fell by 5.8% from -11.1% in the previous month (revised from -11.3%). 
• House approvals softened by 1.7% in the month to 8,623 (prior rev: 0.7%mth) for a decline of 5.1% over the year (prior rev: -7.4%yr). 

• Unit approvals surged by 63.7% to 7,075 — after gapping down by 35.6% in January — reducing the annual decline from -17.8% to -6.7%.

Building Approvals — February | The details 

Dwelling approvals continued their volatile start to 2020 with February's 19.9% rise (+2,602) more than offseting January's 15.1% fall (-2,330). The ABS reported no significant impact from either the summer bushfires or covid-19 so these results probably reflect seasonality more than anything. The surge in unit approvals of 63.7% (+2,752) after the pullback in January of -35.6% (-2,387) appears consistent with that assessment. The more stable house segment saw approvals easing modestly by 1.7% (-150) following January's 0.7% increase (+57).  

The state outcomes are summarised in the table, below. Aside from Queensland (-5.2%mth), the other states saw approvals increase in February, which was largely a reverse of what occurred in January. Approvals snapped back in Victoria (-33.9% to +55.7%), South Australia (-9.6% to 11.1%) and Western Australia (-6.0% to 6.2%). New South Wales strengthened (4.1% to 12.7%) as did Tasmania (1.3% to 12.8%). Against the run of play, Queensland rolled over in February after rising strongly (8.9%) in the month prior.   

The value of alteration work approved to existing residential properties pulled back by 7.7% in February to $687.9m to mostly offset January's 9.9% rise. Approvals in the non-residential segment also declined in the month (-6.1%) to $4.359 after lifting by 4.5% in January. 

Building Approvals — February | Insights 

The headline increase in dwelling approvals (19.9%) was flattered by the surge in unit approvals (63.7%) that was likely associated with seasonal factors. In March, concerns around the covid-19 outbreak escalated in Australia resulting in widespread social distancing measures coming on before the end of the month. With those restrictions seeming set to remain in place for at least the next few months, dwelling approvals are likely to weaken and intensify the headwinds impacting the residential construction sector that as of Q4 2019 was mired in its steepest downturn since 2012.

Australian Treasury's $130bn wage subsidy to counter covid-19

The Australian Federal Treasury has announced a $130bn wage subsidy to support the domestic economy through the covid-19 outbreak. This is Treasury's third and most significant response to the pandemic and follows an initial support package of $17.6bn announced on March 12, which was subsequently scaled up to $63.8bn on March 22 (see analysis on those measures here). Adding in the $130bn wage subsidy, total Commonwealth support has been boosted to $193.8bn out to 2023/24 (10.2% of annual GDP), though most of this is to impact the economy before June 30 and then into the 2020/21 financial year. Over this period, total Commonwealth support is around 20% of GDP, we estimate. 

Under the 'supporting businesses to retain jobs' measure, the intent of the wage subsidy is to allow employers that have been significantly impacted by covid-19 to reactivate trade quickly after the period of disruption eases by helping them to retain staff in the interim. Eligibility for businesses to participate is as follows; 

• Where turnover is below $1bn; turnover needs (or be expected) to fall by more than 30% over their usual activity statement reporting period (one or three months) relative to the same period a year ago 

• Where turnover is above $1bn; turnover needs (or be expected) to fall by more than 50% over their usual activity statement reporting period (one or three months) relative to the same period a year ago

Note that non-for-profit organisations can participate but the nation's 5 largest banks—that are subject to the 'Major Bank Levy'—have been excluded. Self-employed individuals can also participate in the case where they expect to sustain a 30% reduction in turnover (for at least a one-month period) relative to the same period a year ago.  

The scheme is to be administered by the ATO and will see qualifying businesses receiving wage support from the government in the form of a $1,500 'jobkeeper payment' per fortnight per each eligible employee that was on their books on March 1, including any that have since been stood down provided their former employer re-engages them, for a maximum period of 6 months. The scheme started on March 30 and payments will be made by the ATO to employers monthly in arrears from the first week of May. 

An 'eligible employee' is one who was either a full-time, part-time or long-term casual (tenure of at least 12 months) with their employer as at March 1. They must also be an Australian citizen or permanent visa holder or meet other eligibility criteria set out here.  

Where those qualifications are met, receipt of the wage subsidy requires an employer to ensure that each eligible employee receives remuneration of a minimum of $1,500 per fortnight for a maximum of 6 months. Thus, effectively;

• an employee ordinarily receiving less than $1,500 per fortnight (before tax) will have their wage topped up by the employer to meet this threshold
• an employee ordinarily receiving $1,500 per fortnight (before tax) maintains the same level of income
• an employee ordinarily receiving more than $1,500 per fortnight (before tax) has the first $1,500 of their wage subsidised, with the employer then able to top up the payment so that it remains in line with their existing arrangement

In the case where an eligible employee was on the books as at March 1 but then subsequently stood down, their previous employer can re-engage them and receive a $1,500 payment per fortnight, which they then must then ensure goes in full to the employee, before any top-up occurs. The design of the scheme provides employers with the discretion to pay superannuation on the additional component over and above their ordinary wage level. 

Supporting businesses to retain jobs fact sheet here 

Employer fact sheet here

Employee fact sheet here 

Macro (Re)view (27/3) | Covid-19 batters global economy

The impact of the covid-19 outbreak hit the data flow this week providing a glimpse into the scale of its impact on economic activity and employment, while stimulus efforts from fiscal and monetary authorities continued to advance in response. In the markets, there was a reversal of sorts from recent themes as risk assets rallied, liquidity concerns eased and US dollar strength was pared back. On the covid-19 front, confirmed cases globally according to the World Health Organization moved north of 500,000 with the US overtaking China as the nation with the highest case count, while Australia's count stood at 2,985; up from 709 at the end of last week, according to data reported by the Department of Health.   

In the US, after much delay, Congress and President Trump gave the green light to a $2tn stimulus package that is unprecedented in its size and scope but entirely appropriate given the scale of the crisis, both from a public health and economic perspective, unfolding in the world's largest economy. Emphasising this point was a truly shocking rise of 3.283m in the number of US citizens who filed for unemployment benefits for the first time in the 7-day period ending March 21; a number so high that it eclipsed the previous record high set back in 1982 by more than a factor of four, and in a single week erased all of the cumulative job gains achieved over the past 18 months (see, below). 

Chart of the week

The centrepiece of the stimulus package is cheques of $1,200 for individuals, with the benefit phasing out to zero for incomes between $75,000 and $99,000, while an additional $500 per child will also be available. To address the shock to the labour market, unemployment benefits have been scaled up and access to that assistance has been expanded. For businesses, Treasury will set aside $500bn for a lending program, with additional incentives available for small and medium-sized enterprises. There were further policy changes from the Federal Reserve this week, most notably the Committee announced it would move to open-ended asset purchases to ensure the transmission of low rates to the real economy remains and liquidity strains do not re-emerge in the Treasury and mortgage-backed securities markets. In other announcements, the Fed unveiled a range of new facilities to support the flow of credit to households and businesses. For an overall perspective on how the covid-19 outbreak has hit the US economy, IHS Markit's flash PMI for March reported that activity pulled back by its most since the financial crisis as the composite measure rolled over from 49.6 to 40.5 (readings < 50 signal contraction). The services sector took the brunt of the decline as activity fell from 49.4 to a record low of 39.1 in response to strict social distancing measures that have severely dented consumer-related industries such as restaurants and travel. Activity in the manufacturing sector also softened in March on the back of weakness in order volumes and production.

Over in the continent, March's flash PMI conveyed the severe impact that covid-19 has wrought on the euro area economy in just a single month as activity collapsed from a modest pace of expansion of 51.6 in February to its lowest level on record at 31.4 in March. Whereas the euro area's services sector had remained resilient to the global trade tensions that drove its key manufacturing sector into a severe downturn from mid-2018, it buckled under the pressure brought on by the covid-19 outbreak as governments in Germany, France and on the periphery escalated containment measures. Services sector activity almost halved in March to its lowest reading on record at 28.4, while enforced closures of businesses resulted in the most severe month of job losses in the post-financial crisis period. The manufacturing sector did not escape unscathed with activity falling from 48.7 to 39.5, which reflected the steepest fall in new orders in a single month in nearly 11 years. At least stimulus will be on the way, to be led by the largest economy in the bloc in Germany, with its parliament this week agreeing to terms on a €750bn stimulus package, while it also voted to suspend its debt ceiling in a move the will allow a further €156bn to be added later this year if required. The European Central Bank remained in focus this week as further details came to light regarding its recently announced Pandemic Emergency Purchase Programme (PEPP). This programme involves the Bank purchasing at least €750bn of private and public sector securities through to the end of 2020 to limit the financial fallout from covid-19. In a landmark decision, the Bank announced that all previously self-imposed limits would not apply in the PEPP, in effect giving itself unlimited flexibility on the type and quantity of purchases it is able to make. Staying with the ECB theme, an op-ed from its former President Mario Draghi published in the Financial Times generated plenty of attention in which he advocated for the public sector to use its balance sheet to protect the economy from the shock induced by covid-19. In the UK, the Bank of England's policy meeting saw its benchmark interest rate and asset purchases left unchanged, though the Monetary Policy Committee "stands ready to respond further as necessary to guard against an unwarranted tightening in financial conditions, and support the economy".

Turning to Australia, last Sunday the Treasury announced an expanded fiscal stimulus package that resulted in Commonwealth support rising from $17.6bn to $63.8bn (0.9% to 3.3% of annual GDP) over the period out to 2023/24 (analysis here). This expansion includes additional income support measures for households and more cash flow assistance for businesses. In an address to the nation on Friday, Prime Minister Morrison indicated that additional measures to support businesses through enforced closures will be forthcoming. A newly released series from the ABS on Thursday highlighted the distress that covid-19 has unleashed on the business sector with 96% of surveyed firms anticipating to be affected in the months ahead citing both demand and supply-side impacts (see here). Further emphasising the difficulty of the current environment, the Commonwealth Bank's flash PMI rolled over from 49.0 to 40.7 in March. Mirroring the trend from offshore, it has been the services sector hardest hit with activity falling from 49.0 to 39.8 on the back of falling demand and cancellations due to social distancing as well as uncertainty over the outlook.      

     

Australian businesses in distress from covid-19

The ABS is now compiling a new set of releases to track the impact of the covid-19 outbreak on the Australian economy. In a report released by the Bureau today, from a sample of 3,000 businesses, nearly 1 in 2 respondents (49%) had noted an adverse impact by mid-March, while 86% of firms expected to be impacted in the months ahead. Note that these results largely are based off responses that came through before the implementation of stricter social distancing and other containment measures that will effectively suspend activity in a number of industries through closures and cancellations. 

The chart, below, provides an industry breakdown showing the percentages of respondents already reporting an impact by mid-March, as well as an expected percentage of firms anticipating to be hit by covid-19.    

Source: ABS

By mid-March, 78% of responding firms operating in the accommodation and food services industry had been impacted, while 96% of businesses foresaw an upcoming hit. Since the survey was completed, greater travel restrictions have been put in place, while cafes and restaurants (outside of takeaway options) have been ordered to close their doors. One industry that looks to be underrepresented in this survey is real estate following Tuesday night's announcement from Prime Minister Morrison that open house inspections and auctions are now prohibited.   

The types of impacts, both experienced and expected, reported by firms are summarised in the chart, below. The key theme highlighted here is that the covid-19 outbreak is both a demand and supply-side shock to the economy, which is only accentuated by the palpable level of uncertainty over the outlook.    

Source: ABS

As per the chart, below, the impacts of covid-19 are being felt by businesses of all sizes. Fiscal stimulus measures to date have been targeted at small and medium-sized enterprises as these types of firms employ the majority of the workforce. 

Source: ABS

In other analysis, the ABS reported that firms' responses around expected impacts from covid-19 were largely in line with the unsettling news flow from the past few days relating to themes of closures of businesses, job losses and cash flow concerns. 

Australian Treasury announces further covid-19 stimulus

The Australian Federal Treasury announced an expanded fiscal stimulus package on Sunday in response to the unfolding covid-19 outbreak. On March 12, Treasury initially unveiled A$17.6bn stimulus package (0.9% of annual GDP), with Sunday's announcements boosting this by a net $46.1bn over the period out to 2023/24. In total, Commonwealth stimulus has lifted to $63.8bn (3.3% of annual GDP). 

The measures announced on Sunday mean the fiscal impact before June 30 has risen from $10.95bn to $25.78bn and from $6.58bn to $36.26bn in 2020/21. Looking further into the measures;

Households/individuals

• Income support for individuals: A new measure; existing and new recipients of the Job Seeker Payment, Youth Allowance Jobseeker, Parenting Payment, Farm Household Allowance and Special Benefit will be eligible for a fortnightly supplement of $550. (2019/20 impact: $5.22bn)

• Payments to support households: Extending on a previously announced measure, income support recipients will now receive a second payment of $750. The first will flow from 31 March and the second from 13 July. (2019/20 impact: $4.88bn).   

• Temporary release of superannuation: A new measure; impacted workers will be permitted early access to superannuation on a tax-free basis on amounts up to $10,000 in 2019/20 and another $10,000 in 2020/21. (2019/20 impact: $0.02bn) 

• Lower the social security deeming rates: Extending on an earlier announcement, the deeming rate has been cut by a further 0.25ppt at the upper (2.25%) and lower (0.25%) bands. (2019/20 impact: $0.035bn)    

Businesses

• Boosting cash flow for employers: Expansion of an earlier measure; offers small and medium-sized businesses (annual turnover < $50mn and employ workers) an effective refund of tax withheld. Previously, firms were entitled to a 50% refund between a minimum of $2,000 and a maximum of $25,000, which has now been raised to a 100% refund between a minimum of $10,000 to a maximum of $50,000. Between July and October, firms will then be entitled to an additional payment equal to that already received under this measure, meaning that the minimum payment over the 2020 year is $20,000 to a maximum of $100,000. (2019/20 impact: $14.9bn)

• Increasing instant asset write-offs: Expansion of an earlier measure; threshold has been lifted from $30,000 to $150,000 and is available to firms with an annual turnover of up to $500mn. (2020/21 impact: $2.3bn). 

• Support for Australian airlines and airports: Providing tax relief for the airline industry. (2019/20 impact: $0.437bn). 

• The backing business investment, supporting trainees and apprentices and support for coronavirus affected regions measures were unchanged from previous announcements.           

When including the measures announced last week by the RBA ($90bn Term Funding Facility), Treasury ($15bn injection through AOFM into wholesale funding markets) and the government (providing up to a total of $20bn in loan guarantees to banks for lending to small and medium-sized enterprises), the value of the package rises to $188.8bn (9.7% of annual GDP).  

Macro (Re)view (20/3) | Global central banks go all-out with stimulus

Central banks across the globe this week came out in a show of force doubling down on their efforts to provide support to their economies in response to the covid-19 outbreak and in an attempt to ease liquidity strains in the market and calm rampant volatility. Add in rising concerns around credit risk and that goes some way to explaining the unrelenting surge in demand for the US dollar over the week despite the precarious outlook for the US economy. According to analysis by Bloomberg, more than 30 rate cuts were announced by central banks through the week, while global fiscal stimulus packages are now pushing the US$2tn level and are set to rise much higher.    
    
Before the open on Monday (Sunday night local time), the US Federal Reserve announced an emergency rate cut of 100 basis points lowering the fed funds rate to 0-0.25%, accompanied with the forward guidance that rates will be kept at that level until its policy-setting Committee "is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals". Balance sheet expansion is also being turned up to full throttle "over the coming months" by at least US$700bn, with Treasury purchases to increase by $500bn and mortgage-back securities by some $200bn. Whereas the Committee's recent focus regarding Treasury purchases was aimed at ensuring the fed funds rate remained within its target range, this is very much a return to the large-scale quantitative easing it has turned to on three previous occasions in the post-financial crisis era. Meanwhile, the Fed also revived a range of facilities to ensure smooth functioning and liquidity for commercial paper, money markets and primary dealers, as well as swap-lines with 14 other central banks across the globe to address the issue pertaining to the stretched supply of US dollars across markets. On the fiscal front, Washington is making preparations for a stimulus package in the order of $1tn to bolster the economy against covid-19, of which $500bn will be set aside for payments to households, $300bn in loans to assist small businesses, $150bn in funding for impacted sectors and $50bn specifically for the airline industry.   

Across the Atlantic, the European Central Bank followed up last week's announcements (discussed here) by unveiling a €750bn Pandemic Emergency Purchase Programme (PEPP) with the continent facing a severe hit to economic activity from covid-19. Recent missteps in communication from the Bank resulted in a widening of peripheral bond spreads, hampering the transmission of its monetary policy settings. Keen to address these market dislocations and any perception that it was out of ammunition, the Governing Council's statement was from the playbook of its former President Mario Draghi of doing "whatever it takes" to support the single currency. As such, while the PEPP will see €750bn in purchases of public and private sector securities take place through to the end of the year, its size, duration and composition can all be increased or adjusted as required. Most notably, existing limits self-imposed by the ECB relating to government bond purchases (in line with the capital key) are to be relaxed in the PEPP, which will allow it to target dislocations in spreads, as occurred in Italian bonds last week, that would otherwise impair the ability of governments to support their economies through this shock. Underlining this point, the Governing Council's statement contained the line that it would "not tolerate any risks to the smooth transition of its monetary policy in all jurisdictions of the euro area". Together with earlier announcements, the ECB's asset purchases will ramp up by some €1.1tn out to the end of the year. Over in the UK, after last week's measures (discussed here), the Bank of England (BoE) came through with further stimulus announcing a 15 basis point cut in the Bank Rate to 0.1% and a £200bn increase in asset purchases. In conjunction with the Treasury, the BoE has established its Covid Corporate Financing Facility that will provide liquidity to firms to help them mitigate the impact of cash flow disruptions. 

— — —

Switching the focus onshore, the unfolding disruptions from the covid-19 outbreak prompted a coordinated response from Australia's monetary and fiscal authorities this week (full analysis of those measures here). On the monetary side, the Reserve Bank of Australia (RBA) Board announced sweeping policy changes at a special meeting this week making its first foray into the unconventional space. The main decisions the Board made were; a 25 basis point rate cut lowering the cash rate to its effective lower bound of 0.25% (see chart of the week, below), commencing quantitative easing and setting a target of 0.25% for the 3-year Commonwealth Government bond yield, establishing a new funding facility of A$90bn in 3-year money at a fixed rate of 0.25% to encourage banks to lend to small and medium-sized enterprises, and an upward adjustment to interest accruing on banks' excess reserves held at the RBA. 

Chart of the week

Market functioning was also a clear consideration, with the Board announcing that it will continue to provide daily liquidity through one and three-month repo operations, while the Bank has also established a swap line with the Fed to ensure the provision of US dollars for domestically-based financial institutions. RBA Governor Philip Lowe outlined in a speech following the Board's announcements that these policy changes were made "to help support jobs, incomes and businesses as the Australian economy deals with the coronavirus" and were required "in the context of extraordinary times". Certainty, these policy settings will not be short term, with Governor Lowe indicating in the press conference that bond purchases and rates at the lower bound could be the status quo for the next few years. The Federal government is currently working through the details of a second stimulus package to complement the $17.6bn already announced, while the Treasury this week unveiled $15bn in liquidity to be injected into the nation's wholesale funding markets through the Australian Office of Financial Markets to assist the flow of credit to households and businesses. The markets will have also welcomed the announcement by the Australian Banking Association that lenders will provide loan deferrals for small businesses impacted by covid-19 for up to six months, while the major banks are also prepared to offer six-month deferrals on residential mortgages. 

On the data front this week, February's update on labour market conditions was stronger than expected (full review here) but was of little market interest given that it preceded concerns around the covid-19 outbreak in Australia. Employment increased by 26.7k in the month — well clear of the consensus forecast for a 6.3k rise — while the unemployment rate declined from 5.3% to 5.1% in a reversal of its uptick in January. Clearly, the labour market faces significant headwinds in the months with hiring likely to freeze up and hours worked decline in response to disrupted trading conditions. The key for policymakers is to contain or limit a rise in unemployment over the next few months that would impair the recovery of economic activity once concerns around covid-19 subside.

Coordinated response from RBA and Treasury to covid-19

The Reserve Bank of Australia and the Federal Treasury have today announced a range of policy measures aimed at supporting the Australian economy and its financial markets through the headwinds emanating from the coronavirus outbreak. 

From an RBA perspective, Governor Philip Lowe expanded on the key policy changes the Board have made in a speech in Sydney, explaining that they are intended to "help support jobs, incomes and businesses as the Australian economy deals with the coronavirus". These measures are;

• An easing in monetary policy: The Board lowered the cash rate by 25 basis points to 0.25% taking it to its effective lower bound, while it also introduced a state-based form of 'forward guidance', which states that it will: "not increase the cash rate from its current level until progress was made towards full employment and that we were confident that inflation will be sustainably within the 2–3 per cent range".

• Yield target on 3-year Commonwealth Government bonds: The RBA will, from tomorrow, set a target of 0.25% for the 3-year Commonwealth Government bond yield. To do this, it will commence quantitative easing where it will purchase Commonwealth Government bonds (and semi-government bonds if necessary) in the secondary market across a range of maturities (technical details here). Unlike the approach taken by the Federal Reserve and European Central Bank in similar initiatives, the RBA has not nominated a specific amount of purchases it will undertake, rather it will make whatever amount of purchases whenever necessary to achieve a yield of 0.25% on a Commonwealth 3-year security. This target will be kept in place by the Bank until such time as "progress is being made towards our goals of full employment and the inflation target".

• Term funding facility to support small and medium-sized enterprises: A new facility has been established where banks will be able to access at least A$90bn (until September 30 this year) in 3-year money at a fixed rate of 0.25% (details here). Banks will be able to borrow amounts that are equivalent to 3% of their existing outstanding credit, though there is an incentive in place whereby that limit will be raised if the lending is directed towards small and medium-sized enterprises.  

• Adjustment to interest charged on banks' excess reserves: The technical workings of how the RBA implements monetary policy are such that interest accruing banks' excess reserves held with the RBA overnight is set 25 basis points below the cash rate. Given this most recent reduction in the cash rate, that would have fallen to zero and was thus seen as "unhelpful" in the current climate. To that end, interest earned on Exchange Settlement accounts has been lifted to 10 basis points.

Importantly, given the prevailing liquidity issues in financial markets, the RBA confirmed it will continue with its daily repo operations (one and three month), while it advised it will also conduct six-month operations (or longer) on at least a weekly basis.

In conjunction with these measures, Federal Treasurer Josh Frydenburg announced that A$15bn would be provided for the Australian Office of Financial Markets (AOFM) to invest in wholesale funding markets that are used by small bank and non-bank lenders. The AOFM will have the capacity to purchase residential mortgage backed securities as well as a range of other asset backed securities.  This measure will help to ensure borrowing costs for households and small and medium-sized enterprises are not impaired by market dislocations. 

Australian employment +26.7k in February; unemployment rate 5.1%

Conditions in the Australian labour market face a material weakening in the months ahead due to the disruption and uncertainty associated with the outbreak of the coronavirus. However, initial conditions still matter and the news on that front was better than expected in February as employment advanced by 26.7k and the unemployment rate declined to 5.1%.   

Labour Force Survey — February | By the numbers

• Employment (on net) increased by a stronger-than-expected 26.7k (seasonally adjusted) in February—surpassing the median estimate (of 6.3k) for the 4th straight month. January's initially reported increase of 13.5k was revised to 12.9k.

• The national unemployment rate reversed its 0.2ppt rise in January, falling unexpectedly from 5.3% to 5.1%, whereas the consensus forecast was for it to remain unchanged.   
• Spare capacity as measured by the underutilisation rate declined from 13.9% to 13.7%, though the underemployment rate was unchanged at 8.6%. 

• Workforce participation rate eased from 66.1% to 66.0% in the month (expected: 66.1%). 

• Aggregate hours worked fell by 0.2% in February after declining by 0.5% in January, which saw annual growth slow from 0.9% to 0.5%.

Labour Force Survey — February | The details

The reversal in the unemployment rate in February from 5.29% to 5.10% was driven by a robust monthly employment outcome (+26.7k) at the same time as participation in the workforce eased from 66.10% to 65.99%. Overall, the workforce was little changed, rising by just 0.3k in the month. 

The decline in the headline unemployment rate flowed through to a reduction of 0.16ppt in the underutilisation rate (combining the unemployed and underemployed) from 13.88% to 13.72%; however, undermployment (counting workers who are available for and want additional hours) was essentially unchanged at 8.63% from 8.59% in the month prior. 

On the employment outcome of 26.7k, this was driven mostly by a 20.0k rise in part-time employment as the full-time segment advanced by 6.7k. The pace of employment growth through the year firmed from 1.86% to 2.06%, with part-time rising from 2.49% to 2.79% and full-time up from 1.57% to 1.65%. 

Despite the rise in employment in February, for the second straight month aggregate hours worked declined, easing by 0.2% to 1.775bn hours for an annual growth rate of 0.5%. Adjusting for the increase in employment, average hours worked per employee in the month declined by 0.4% to 136.4 hours (-1.4%yr).

  

Across the states, employment in February advanced in New South Wales (1.5k), Queensland (14.3k), South Australia (2.8k), Western Australia (10.9k) and Tasmania (4.0k), though Victoria went against the run of play (-8.8k). However, in terms of unemployment rates, both New South Wales (from 4.5% to 4.6%) and South Australia (from 5.7% to 5.8%) saw increases. Declines were recorded in Victoria (5.4% to 5.3%), Queensland (6.2% to 5.6%), Western Australia (5.7% to 5.2%) and Tasmania (5.7% to 5.0%).

        

Labour Force Survey — February | Insights

The details around employment and unemployment were stronger than expected and broadly mitigated a soft report in January. However, as noted by the ABS, concerns around the coronavirus outbreak had yet to take hold in February so it would be dangerous to read too much into today's report. The ABS advised that the early impacts of the coronavirus on the labour market data are likely to become evident in the first instance through the hours worked measure. 

Preview: Labour Force Survey — February

At 11:30am (AEDT) today, the ABS is due to publish its Labour Force Survey for the month of February. A softening in the nation's labour market occurred in January as the unemployment rate and spare capacity more broadly increased and markets expect today's release to be a lacklustre one.  

As it stands | Labour Force Survey

In January, employment (on net) lifted by 13.5k—slightly outperforming consensus (+10.0k) for the third month in succession. Employment in the full-time segment advanced by 46.2k while part-time employment declined by 32.7k. However, with participation in the workforce picking up from 66.0% to 66.1%, the unemployment rate increased by more than expected rising from 5.1% to 5.3%, whereas the median forecast was for a more gradual lift to 5.2%. Meanwhile, the underutilisation rate jumped from 13.4% to 13.9% and the underemployment rate increased from 8.3% to 8.6%, with both measures reaching their highest since June 2018. Confirming the soft nature of the update, hours worked contracted by 0.4% in the month, which saw annual growth decelerate from 2.2% to 0.9% to a 2-year low.  

For a full review of January's report see here 

Market expectations | Labour Force Survey

The consensus estimate is for employment to post a gain of 8.5k in February between a range of individual forecasts from -10.0k to +20.0k. On the expectation that participation remains unchanged at 66.1%, the unemployment rate is anticipated to hold at 5.3% (range: 5.2% to 5.4%).  

What to watch | Labour Force Survey

Markets will be laser-focused on the unemployment rate from this point onwards as a key gauge of the impact of the coronavirus outbreak on firms and the broader economy. According to the recent NAB Business Survey, around 50% of responding firms were yet to notice an impact from the coronavirus with employment expectations expecting to average around 17k per month over the next 6 months. After rising from 5.1% to 5.3% in January, another upside surprise on the unemployment rate in February would suggest that labour market conditions were already beginning to deteriorate ahead of what will likely be a period of material weakness through the June quarter. 

Australian property prices rise 3.9% in Q4

The upswing in Australian house prices gathered momentum towards the end of 2019 after a near two-year-long downturn came to an end in Q3. According to the ABS's Residential Property Price Indexes data released this morning, the weighted average of capital city prices lifted by 3.9% in Q4 — its strongest quarterly increase in 3 years — as annual growth turned positive (2.5%) for the first time since Q1 2018. The factors that have supported this upswing include the resumption of the Reserve Bank of Australia's rate cutting cycle, an easing in macroprudential controls and increased certainty around tax policy following last year's federal election.  

The overall upswing continued to be driven by Sydney (4.7%qtr) and Melbourne (5.2%qtr), with prices in both of those markets posting their sharpest increases in a single quarter since Q4 2016. Excluding Darwin (-0.8%qtr), prices increased across the other capitals in Q4 but at much more moderate paces; Brisbane 1.8%, Adelaide 1.4%, Perth 1.1%, Hobart 2.7% and Canberra 3.1%. 

The full details across the segments for each capital city are shown in the table, below. On a national basis, house prices (4.2%qtr, 2.8%yr) have risen at a noticeably faster pace than in the unit segment (3.4%qtr, 1.9%yr), which reflects the strength in the established detached markets in Sydney and Melbourne. House prices in the two major markets saw increases exceeding 5% in the December quarter. The most timely data from CoreLogic showed that prices on a combined capital city basis increased by 0.9% in January and by 1.2% in February, though based on the softening evident in last weekend's auction clearance results, it appears likely that activity will be impacted by concerns relating to the coronavirus outbreak.   

The ABS estimates that the total value of dwelling stock lifted by 4.3% in Q4 — its fastest quarterly increase on record — to $7.213tn to be up by 6.2% over the year.

Macro (Re)view (13/3) | Covid-19 response turns to fiscal

Events in Australia this week centred on the announcement of the Federal Government's fiscal stimulus package in response to the unfolding crisis ensuing from the coronavirus outbreak. From a headline perspective, the package is valued at A$17.6bn over the period out to 2023/24 (0.9% of annual GDP), though the focus is around providing near-term assistance to households and small and medium-sized enterprises, which will total A$10.95bn and flow through before June 30. 

For households, the measure is a once-off payment of A$750 going to those already receiving income support (impact in Q2 $4.76bn). The measures for businesses include initiatives targeted at small and medium-sized enterprises to provide cash flow assistance and encourage investment. The cash flow assistance component is effectively a partial refund on tax withheld (of between $2,000-$25,000) available to businesses that employ staff and have a turnover of less than $50m (Q2 impact $5.9bn); additionally, wage subsidies are available for businesses that employ apprentices and trainees. On investment, the threshold for instant asset write-offs has been lifted (from $30,000 to $150,000) with access significantly expanded, and there will also be a 15-month period of accelerated depreciation deductions. The intent is clearly aimed at supporting the domestic economy through what will be a very challenging June quarter, noting also this comes on top of a $2.4bn package for the healthcare sector to combat the coronavirus announced last week as well as $2.0bn in bushfire recovery assistance. Also of note this week was a speech from Reserve Bank of Australia Deputy Governor Guy Debelle, who during the Q&A session said any move towards quantitative easing would involve forward guidance and set an objective for the government bond yield rather than adhering to a specific quantity of purchases.  

The data flow this week underlined the challenges that are ahead, with the Westpac-Melbourne Institute of Consumer Sentiment sliding by 3.8% in March to a 5-year low of 91.9 (see chart of the week, below). The concerns for consumers are around the outlook for economic conditions for the next 12 months (-12.8%mth) and as a result, the Unemployment Expectations Index rose to a 4-year high, while spending intentions regarding 'time to purchase a major household item' rolled over to a 4-year low. Overall, households' assessment of family finances for the next 12 months weakened by 1.7% in March to be down by 4.0% through the year. Turning to the housing market, after a rapid acceleration in house price expectations over the past year (66%), Westpac's Chief Economist Bill Evans reported that the 6.6% fall in that index in March to 141.7 was in line with some slowing in momentum in the market even though the consensus view among consumers was still for prices to rise. This week, January's housing finance update confirmed a stronger-than-expected 4.6% rise in commitments in the month, with annual growth running at its fastest pace in more than 6 years at 23.3%, though the coronavirus outbreak clearly threatens to disrupt activity in the housing market (see here). 

Chart of the week

In the business sector, the early signs of the forthcoming coronavirus impacts were highlighted in the NAB's Business Survey for February with confidence deteriorating from -1 to -4 to its lowest since 2013 and conditions declined from +2 to a neutral (or 0) reading. The conditions sub-components showed a notable fall in profitability (from +1 to -5) and an easing in trading (from +5 to +4). The employment component ticked higher (from +1 to +2) to indicate jobs growth of 17k per month over the next 6 months, but this should be treated with caution as 50% of firms responding to the survey had reported no impact as yet from the coronavirus. To that end, the forward-looking indicators which were softer in February around forward orders and capacity utilisation are at an elevated risk of weakening further in the months ahead.

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Moving offshore, it was a week of extreme volatility in markets and pessimism over the outlook as the World Health Organisation declared the coronavirus outbreak as a pandemic and the breakdown in negotiations around production cuts between OPEC and OPEC+ nations resulted in a plunge in global oil prices, prompted by Saudi Arabia's move to slash its prices and pledge to lift supply. In the US, an address to the nation by President Trump left markets unnerved as details of previously touted fiscal stimulus measures were lacking and a 30-day suspension on travel from Europe was implemented, not before significant confusion ensued as to whether the ban extended to all goods and trade. Later in the week, the New York Federal Reserve sought to ease the sense of fear and panic in markets through a $500bn liquidity injection (through 3-month repurchase operations) on Thursday followed by a further $1tn on Friday ($500bn on 3-month repo and $500bn on 1-month repo). It also announced that it would expand the scope of its asset purchases (running at $6obn/mth) beyond treasury bills. The market volatility and precarious outlook for the US economy caused by the coronavirus saw pricing shift aggressively over the week to have a 100 basis point cut to the fed funds rate nearly fully discounted that would take it to 0-0.25%. By week's end, President Trump had declared the coronavirus outbreak a national emergency, a move which will ensure up to $50bn in funding is released to assist efforts to combat the coronavirus outbreak.  

In Europe, the European Central Bank's policy meeting saw the Governing Council leaving rates on hold — markets had anticipated a cut of 10 basis points — instead opting to boost quantitative easing by €120 billion through to the end of the year (net purchases have been running at €20mn/mth), providing additonal liquidity to the financial system and making more favourable its TLTRO III operations (funding available to the banking sector transmitted to the real economy through lending to small and medium-sized enterprises) for the period between June 2020 and June 2021 such that it will have a dual interest rate ranging from -0.25% to -0.75% (effectively incentivising banks to lend) and raising the amount that banks are able to "borrow" through this channel. Unfortunately for the Bank, the messaging of these measures became somewhat lost in the post-meeting press conference, most notably by the comment from President Christine Lagarde that "we are not here to close (bond) spreads, there are other tools and other actors to deal with these issues". That comment was later effectively retracted by President Lagarde in a separate CNBC interview, saying that the Bank was "fully committed to avoid any fragmentation in a difficult moment for the euro area". At a time of a severe economic shock, widening bond spreads, particularly for Italy, would impair the transmission of the ECB's monetary policy stance to support that economy. With those concerns ameliorated, the situation on the continent took another significant step forward on Friday with the European Commission setting in motion "full flexibility" for member states from EU budgetary rules so that necessary fiscal action to contain the coronavirus outbreak and support their economies can be taken. Importantly, Germany (the largest economy in the bloc) on Friday abandoned its conservative fiscal stance, pledging to go all-out with stimulus measures to support impacted businesses. 

Over in the UK, a coordinated approach from fiscal and monetary authorities was unveiled this week. On the monetary side, the Bank of England announced a range of measures including an inter-meeting rate cut of 50 basis points lowering the Bank Rate to 0.25%, introducing a new funding scheme that will incentivise banks to provide lending to small and medium-sized enterprises and also removed the countercyclical buffer rate imposed on banks for at least the next 12 months that will enable an estimated £190bn in lending to flow into the real economy. On the fiscal side, the UK Government's Budget 2020 contained a combined £30bn of initiatives to support public services, individuals and businesses impacted by the coronavirus. Lastly, overnight on Friday, the Bank of Canada delivered an inter-meeting rate cut of 50 basis points taking its benchmark interest rate to 0.75% with the announcement coming in conjunction with other measures from regulators to support liquidity and lending to businesses.