Australian dwelling approvals -6.1% in August

Australian dwelling approvals declined 6.1% in August - a downside surprise on consensus (-1%) - falling back to their lowest level since the start of the year (16,953). The result was impacted by an unwind in unit approvals that fell 19.7% to also hit a low since January (5,912). By contrast, house approvals increased by 3.3% - their strongest rise in almost a year - to break above 11k for the first time in 5 years. 

Dwelling approvals fell 6.1% in August to post their weakest outcome since March. Approvals declined by 1.9% in the month prior but rose by 6.9% in June. Over the period of the last 3 months, approvals averaged 17.8k, well up from the same time a year ago (16.2k). That uplift was supported by the RBA's easing cycle last year; however, the RBA in 2026 has now raised rates by more than it cut in 2025, with housing prices declining in response. Meanwhile, tax changes announced in the May Federal Budget were intended to advantage new builds, but it remains to be seen whether that has the desired effect.   

House approvals worked up to a 5-year high rising 3.3% in August and lifting by 18.6% over the past 12 months. The current level of housing approvals exceeds the highs of earlier cycles, though the population has also increased significantly since those earlier points in time. 

The weakness in higher-density approvals in August (-19.7%) appears to have been broadly based across all dwelling types. These approvals are by nature lumpy and so can reverse rapidly. On a 3-month average basis, higher-density approvals are tracking just below 7k, consistent with its range of the past 18 months or so.   

Australian CPI rises to 4% in August

Fuel prices surged almost 15% in August post the federal excise tax cut, lifting Australia's headline inflation rate from 3.5% to 4%yr. However, that was slightly below the expected increase (4.1%), prompting a dovish repricing that saw the market-implied odds of a November rate hike fall to below 30% from around 40% after yesterday's rate rise (see here). Core inflation, coming off a strong increase in July (0.5%m/m), slowed to a 0.2% rise, holding the annual pace steady at 3.6%.    

Headline CPI slowed from a 1%m/m rise in July to 0.4%m/m in August. Because that replaced a much weaker reading from August last year (-0.1%) in the annual calculation, headline CPI rose from 3.5% to 4%yr. The key factor driving the slowdown from July to August was a decline in holiday travel prices (-0.2%) after the peak period last month coinciding with school holidays. However, that effect was somewhat mitigated by the federal excise tax cut on fuel ending. Fuel prices increased by 14.8% in August following a 7.5% lift in July. As a result, the transport group saw prices rise 4.2%m/m. Outside fuel and holiday travel, price movements had relatively little impact on inflation. 

Trimmed mean or underlying inflation also slowed coming in at 0.2%m/m after a strong July increase (0.5%). However, the annual pace still printed at an unchanged 3.6%, leaving it around 1ppt above the midpoint of the RBA's target band. Housing-related costs (5.7%Y/Y) have been the major contributor to that on the back of rises in new dwellings (5.4%) and rents (3.6%).   

Australian household spending stalls in August

Australian household spending stalled in August as the winding down of the federal excise tax cut saw fuel prices rise sharply. Transport-related spending increased by 2.3% supported by EV sales while higher fuel prices weighed on spending across other categories. The RBA's tightening cycle has now delivered 100bps of rate rises in 2026 and that will weigh on the outlook for spending into next year.      

Household spending recorded no growth (0%) in August, slowing from solid increases of between 0.9% and 1.2% over the past three months. Annual growth eased from 7% to 6.8%. Fuel prices rose after the Federal excise tax cut ended in July and as tensions in the Gulf flared again. That and strong EV sales saw spending in the transport category rise by 2.3%, propping up household spending amid falls in several other categories, notably in the discretionary spend area that slowed (-0.3%) for the first time since April. Excluding the transport category, household spending fell by 0.4% in the month. 

The largest single category fall came in recreation and culture (-1.4%) as spending on sporting-related events eased. Clothing and footwear and alcohol and tobacco both saw falls of 1%. Meanwhile, spending on furnishings and household equipment declined (0.9%) for the first time since February. Hotels, cafes and restaurants (0.8%) were able to resist the broader trend, advancing for the fifth consecutive month.  

RBA hikes 25bps in September

The RBA hiked the cash rate by 25bps to 4.6% in a unanimous decision (9-0) by the Monetary Policy Board today. Governor Bullock maintained a hawkish tone at the post-meeting press conference saying that with upside risks to the inflation outlook materialising it was prepared to raise rates further. Market pricing was little changed, giving a roughly 50/50 chance to one more hike by December, with the cash rate still seen peaking around 5% by mid next year.  

Following today's hike, the RBA has now delivered 100bps of tightening through this cycle, and the message was that it may not be done yet. The cash rate was held at 4.35% at the past two meetings, but recent developments have forced the Board's hand to hike again. Renewed rises in fuel and energy prices with tensions in the Gulf failing to ease were a key factor behind today's decision, though it was not the only reason. Domestic growth and inflation have been stronger than the RBA was expecting, while the AI-related investment surge is also adding an inflationary impulse. 

The decision statement noted these factors warranted 'a further tightening in financial conditions' to help bring inflation back to target, removing the reference to policy being judged as 'somewhat restrictive'. Governor Bullock said that policy was still seen as restrictive, citing the slowing housing market and estimates of the neutral rate as evidence of this, though it is a sign that this is a relatively low conviction view around the Board table. 

Incoming data will be key for the rates path from here as uncertainty over the domestic economy and inflation continue be described as 'heightened'. The Board wants to see demand cooling to help ease capacity constraints and take pressure off inflation. But that will be complicated by geopolitics if the Gulf conflict keeps fuel prices elevated. The next RBA meeting is on 2-3 November. 

Preview: RBA September meeting

The RBA is set to resume its tightening cycle with a 25bps hike today. This would lift the cash rate to 4.6%, its fourth rate hike of the year after the Board returned unanimous decisions (9-0) to hold in June and August. Markets came away from the August meeting pricing the chance of a hike in September no higher than 20% and only 50/50 by year-end. A hike today is now close to fully priced (90%), with a roughly 1-in-2 chance of a further hike by December. The shift has been driven not only by the global hawkish repricing but also by changing RBA commentary to the incoming data.  

Increased concern over inflation is likely to force the Board's hand into hiking rates again. While there are developments that validate its assessment that policy is 'somewhat restrictive' with the unemployment rate (4.6%) rising to its highest since late 2021, GDP growth slowing (2.1%Y/Y in Q3) and the housing market cooling, inflation remains well above the target band (2-3%). The RBA's preferred quarterly inflation data to Q2 has headline CPI at 3.9%Y/Y and underlying inflation at 3.6%Y/Y.  

At the August meeting, the Board held rates steady as updated forecasts projected inflation would not settle at the midpoint of the target band until 2028, though it noted the risks around that outlook were 'skewed to the upside'. Governor Bullock has since told a parliamentary committee that those 'upside risks to inflation appear to be materialising', a sign that the threshold for it to hike again has been reached. Key factors informing that view were renewed rises in energy prices with the conflict in the Gulf persisting, the AI-related capex surge, and weather-related impacts. 

Second-round effects on a broader range of prices and wages from these cost increases are harder to be convinced of, but the RBA is not prepared to risk being found wanting. That is largely due to its structurally hawkish assessment of the economy, which it judges is operating with excess demand, pressures that have been amplified by years of shocks and weak productivity growth that have impaired the economy's supply capacity. 

Macro (Re)View (25/9) | Yields extend rise

US Treasury yields and the dollar continued to rise this week as strong growth data unlocked further upside, while soft auctions for 5 and 7-year bonds also contributed. Despite this, equities still advanced but were more patchy in Asia. While yields at the front of the US curve stand at their highest since 2024, the moves have been far more significant at the long end, with 10 and 30-year yields at levels last seen in the mid 2000s. Familiar themes have been at the centre of the moves amid concerns around inflation, fiscal sustainability and bond supply, geopolitical uncertainties, and a more hawkish Fed driving up the compensation required to hold longer duration securities. 

   

The final public comments from RBA officials ahead of next week's meeting reinforced the hawkish views that have a rate hike effectively priced as a done deal. August's labour force survey, despite reporting a lift in the unemployment rate to its highest level since late 2021 at 4.6%, did not change those expectations. RBA Governor Bullock's fireside chat at a CEDA event highlighted that higher inflation is the legacy left by the series of global shocks and weakness in domestic productivity in recent years. 

Bullock said policy needed to be calibrated to take pressure off inflation now so that it does not reset expectations. In the labour market, employment rose at almost double the expected pace in August, up 39.5k after a surprise fall in July (see here). However, that could not prevent the unemployment rate lifting from 4.5% to 4.6%, continuing its upward trajectory of the past year, as labour force participation increased to near record highs (67.1%). 

The underlying strength of the US economy was reflected in PMI data that showed activity expanded at its fastest pace in 5 years. The composite PMI registered at a 58.4 in September, defying expectations to slow (55.3) from July's 56 reading, well above the 50 marker that separates expansion from contraction. The services sector was the key driver (58.7), though manufacturing activity also expanded (57).  However, the report also showed inflationary pressures were accelerating, and it wasn't all due to the impact of higher fuel prices, with rising wages costs also a factor. 

In the euro area, economic conditions continue to show resilience to the headwinds it faces. September's PMI lifted to a 3½-year high (53.1). Notably, the manufacturing sector is the outperformer, seeing its strongest period in 4 years, supported by defence and AI-related investment. However, activity in the services sector is also making a contribution, expanding at its strongest pace of the year. As with the US, inflationary pressures picked up, though it is yet to impact growth.    

Australian employment 39.5k in August; unemployment rate 4.6%

Strong employment growth was unable to prevent Australia's unemployment rate lifting to 4.6% in August, its highest since late 2021. The report, mixed in many ways, had little effect on pricing for an RBA rate hike next week, remaining around 90%. There also appears to be some teething issues at play amid the overhaul of the series, with the ABS highlighting caution around the seasonality applied to the August figures.   

Employment rose by a net 39.5k in August, nearly double the expected increase (20k) and more than rebounding from the surprise fall in July (-15.9k). The August gain was driven entirely by a 45.8k contribution from the part time segment, with full time employment down 6.3k. Across the 3 months to August, employment gains averaged a solid 34k per month, its strongest momentum in 6 months. 

An uptick in labour force participation played a key role in seeing the unemployment rate rise. The participation rate increased from 66.9% to 67.1%, adding 67.7k people to the labour force. That exceeded the rise in employment (39.5k), driving the unemployment rate up from 4.5% to 4.6% - its highest since November 2021. However, with the broader underemployment rate easing from 6.3% to 6.2%, total labour force underutilisation remained unchanged at 10.8%.   

Hours worked have been volatile through recent months and that extended to August, lifting by 0.7% month-on-month. That reversed July's decline, while base effects saw annual growth accelerate to 1.7%. The growth in hours worked also significantly outpointed employment growth (0.3%). Full time hours rose 0.6% month-on-month (1.7%yr) - despite the contraction in employment - while part time hours rose 1.3% month-on-month (1.4%yr).  

Preview: Labour Force Survey — August

Australia's latest labour force report is due today covering the month of August. With an RBA rate hike close to fully priced at next week's meeting, the report is unlikely to be a volatility event as the Board's focus remains on the inflation side of its mandate. The unemployment rate is forecast to hold at 4.5%, sitting at the low end of the range that RBA Governor Bullock said earlier this week would help ease inflation pressures.       

August preview: Employment rebound forecast  

Markets look for a solid report today, with employment forecast to rise by 20k in the month (range: 10-47k), rebounding from a decline of almost 16k last time out. The unemployment rate, after rising to 4.5% in July, is expected to remain unchanged (range: 4.4-4.5%).  

July recap: Employment surprises to the downside

The unemployment rate lifted from 4.4% to 4.5% in July after employment surprised with a 15.8k decline (full time 16.3k/part time -32.2k). Employment was expected to lift by 12k following increases of 38.2k in May and 80.2k in June, its largest rise since April last year. Weighed by the fall in employment, hours worked declined by 0.6% month-on-month.  

In a series of mixed outcomes, while the headline unemployment rate rose, the broader underemployment rate held steady at 6.4%; however, total underutilisation ended up falling to 10.8% from a 4-year high (10.9%). The participation rate eased to 66.9% but is close to record highs.    

Macro (Re)View (18/9) | Hawkish Fed drives USD

A hawkish Fed meeting saw the US dollar reconnect with higher Treasury market yields as a key driver this week. The DXY lifted more than 1% to close at highs since late July above the 100 level. The Treasury curve flattened as yields at the front end lifted in anticipation of a Fed hiking cycle while yields at the longer end drew confidence that steps were being taken to address elevated inflation. While the Fed set the tone, other central banks were also hawkish, including the BoE and RBA. Meanwhile, the BoJ hiked rates, but the market reaction indicated developments fell short of reinforcing the hawkish expectations priced going into the meeting.  

A highly telegraphed rate hike from the Fed lifted the benchmark rate by 25bps to 3.75-4% in a unanimous decision by the FOMC. Chairman Warsh described the move as taking away 'a dose of accommodation' after saying he was 'hard pressed' to conclude financial conditions were restrictive enough to deal with inflation at his speech in Jackson Hole. History suggests once the Fed hikes more hikes follow. That is the scenario factored into the market curve, which discounts 3 more hikes coming through by mid next year. Updated projections from Fed members imply only at least 1 additional hike this year as officials also lifted their outlook for growth and inflation. However, that is still much more hawkish than its previous path for steady rates in 2026 ahead of a cut in 2027.  

The Bank of England left its key rate 3.75% this week as the MPC again returned a 6-3 vote. However, this decision was more hawkish than at the previous meeting after the committee highlighted rising risks to inflation, with Governor Bailey and other MPC members indicating that energy prices would need to fall to keep policy tightening at bay. That is not the BoE's base case as the central bank now expects that energy price rises will drive inflation to a slightly higher peak above 4% by early next year. 

The BoE also announced an overhaul of its balance sheet reduction plans, aiming to limit its involvement in the gilt market. The plans put a pause on active sales until at least April next year as the BoE explores options to sell holdings back to the government instead of the market, purchases that would be funded with new issuance. The BoE intends to restrict any such sales to maturities between 2035 and 2049, leaving aside its longest dated holdings (around £120bn) to back current and future banknotes. The balance sheet under these plans would run off in the background by £46bn annually, down from previous annual targets of £70bn and £100bn. 

RBA officials further reinforced market pricing for a rate hike at the September meeting following a parliamentary testimony hearing this week. Governor Bullock said some of the upside risks to inflation 'appear to be materialising' and the key question for the Board was whether policy was restrictive enough to deal with that. While growth has slowed and labour market conditions had eased, Bullock reiterated that capacity pressures remained after years of weak productivity growth had constrained the supply side of the economy.      

Macro (Re)View (11/9) | Yields on the rise

Higher oil prices following a reescalation of conflict in the Gulf renewed inflationary concerns this week, seeing bond yields rise sharply. Though given the scale of the rise in yields, the moves across equity and FX markets, for now at least, have been far from disorderly. Brent crude oil rose to highs since May pressing an intraweek high of nearly $110/bbl before ending the week below $105. The ECB hiked rates by 25bps this week and the Fed and BoJ are expected to do likewise in the week ahead.        

Key US inflation data only further raised expectations for a Fed rate hike at next week's meeting. Headline CPI for August rose 0.4%m/m and 3.4%yr, while the core rate printed a touch above consensus at 0.3%m/m, though the annual pace was 2.4% from a prior 2.5% in July. Despite his insistence not to offer policy guidance, Chair Warsh's Jackson Hole speech did effectively that as market expectations shifted towards a September hike, with the data since then reinforcing that outlook. Market pricing implies a tightening cycle of 3-4 hikes.    

The ECB delivered a widely expected 25bps rate hike this week but still managed to out hawk the market warning that inflation was 'set to remain well above target for an extended period'. This was the second hike since June, and the depo rate now stands at 2.5%. Markets are expecting the ECB will continue to move towards a much more restrictive stance, pricing in a further 75bps of tightening by mid next year. Whether or not that is ultimately required remains to be seen. ECB President Lagarde gave no clear signs of that at the post-meeting press conference, while new macroeconomic projections published by the central bank made only modest changes to its baseline outlook from June. Slightly stronger growth and higher inflation is now expected, though the changes were not a material reassessment of the outlook.  

Commentary from senior RBA members this week reinforced expectations for further tightening. The odds of a September rate hike sit at around 80%. Deputy Governor Hauser indicated unease over the inflation outlook had increased, while the bank's chief economist Hunter said that declining housing prices had yet to have a dampening impact on the economy. RBA officials in the week ahead will provide more insights on the economy and policy at their quarterly parliamentary testimony on Friday. 

Macro (Re)View (4/9) | US rates again in focus

Fed rates were back in the spotlight this week, with pricing for a September hike wound back after Governor Waller said current inflationary trends were sufficient to keep policy tightening at bay. However, that places a lot of emphasis on next week's US CPI report. Waller's comments were key to a softer USD this week (-0.5%), outweighing strong labour market data. The dollar was weakest against the JPY, so much so that there was speculation of currency intervention, though that has not been confirmed by Japanese officials. Domestically, resilient Q2 GDP growth firmed expectations for further RBA tightening, supporting the AUD.    

Comments from Fed Governor Waller around disinflationary progress were taken by markets as a contrast to Chair Warsh's address at Jackson Hole, casting doubt that the central bank is on track to hike rates. Waller said the upcoming inflation data (due Friday) would be the key factor in whether he votes to hold or hike. The labour market seems the least of the Fed's concerns following an upside payrolls report for August. Nonfarm payrolls rose 162k in the month, surging past expectations (55k), while employment over June and July was revised up by a combined 55k. The unemployment rate held at 4.1% even as participation saw a slight increase to 61.6%. Growth in average hourly earnings remained contained easing to a 3.1%yr pace from 3.2%.   

       

The ECB is set to deliver a widely expected 25bps rate hike next week, lifting the depo rate to 2.5%. Whether or not the ECB is prepared to make policy more restrictive will drive the market reaction. Economic conditions have been more resilient than expected, but there have been few signs of second-round effects on inflation. In August, headline inflation rose from 2.9% to 3.3%yr on energy prices, though core inflation eased from 2.5% to 2.4%yr - only just above the ECB's target. In the UK, BoE Governor Bailey said the central bank is committed to returning inflation to target but it has flexibility over the timeline. Markets are pricing in a BoE hike by year-end. 

Confirmation of resilient economic growth in Australia in the June quarter saw pricing for an RBA rate hike in September rise to around a 75% chance, while a full hike remains priced for November. The AUDUSD rose through 0.72 to highs since May. While on the currency, the AUD has defied a deteriorating current account deficit since 2023 (see here) to be up by around 10% in trade-weighted terms over the period. Trade data for July reported weakness for both exports and imports (see here).  

Real GDP surprised to the upside of market and RBA forecasts expanding by 0.4% in the June quarter and 2.1% through the year (reviewed here). While growth was slower over the first half of the year (0.7%) than in the back half of 2025 (1.4%), it held up better than feared from the headwinds of the fuel price shock, RBA rate hikes and a softening housing market. 

Household consumption led growth in the quarter as record EV sales boosted discretionary spending (1.4%). While sentiment was weak due to cost-of-living pressures, the fuel excise tax cut and robust labour market conditions have supported demand. Despite slowing (-0.5%), business investment has been the major driver of growth over the past year as the data centre build out has accelerated. 

Meanwhile, cycle lags mean current strength in dwelling investment (1.6%) is reflecting last year's rate cuts. A fall in dwelling approvals in July (-3.6%) may be the first signs of a turn in momentum (see here). Private demand all told has risen 3.6%Y/Y, supporting growth as public demand has slowed (1.9%Y/Y). A higher interest rate backdrop has seen government spending slow to a 3-year low. 

Australia's trade surplus narrows to $1.9bn in July

Australia's trade surplus came in at $1.9bn in July, above the $1.5bn figure expected. Exports (-3.3%) fell by more than imports (-2.5%), narrowing the surplus from $2.3bn in June (revised up from $1.9bn).  

July's $1.9bn trade surplus followed a $2.3bn surplus in June, marking back-to-back surpluses for the first time since the start of the year. The Gulf conflict has increased volatility in global trade, which was already recovering from tariff-related uncertainty. The 3-month average for the trade balance was a wafer-thin surplus of $0.6bn, down from $4.2bn a year ago. That compression reflects growth imports (14.1%yr) significantly outpacing exports (2.6%yr) 

Exports declined by 3.3% in July to $46.3bn (2.6%yr). The main source of weakness was in non-monetary gold, those exports down 26.1% on the month. Non-rural goods were broadly flat (-0.2%) as LNG exports lifted strongly (9.6%) only to be offset by declines in iron ore (-1.6%) and coal exports (-4.3%). Defying the trend, rural goods increased by 5.8% for the month on the back of a strong increase in cereals (19%). 

Imports were down for the third month running posting a 2.5% fall, coming in at $44.3bn (14.1%yr). Declines in global oil prices amid optimism around a durable reopening of the Strait of Hormuz saw fuel imports fall by 12.3%m/m, extending their decline over the past 3 months to 29%. That saw intermediate goods imports fall 7.8% in July. 

That outweighed increases in capital (6.7%) and consumption goods (3.5%). Data-centre related imports looked to pick up as ADP equipment rose 50% in the month, driving capital goods. Meanwhile, consumption goods were boosted by vehicle imports (8.2%), a key theme in yesterday's June quarter economic growth figures (see here).  

In review | Australian Q2 GDP: Growth remains resilient

The Australian economy expanded by 0.4% in the June quarter, modestly outpointing consensus and growth in the March quarter (0.3%). Over the first half of the year, the economy was resilient to global and domestic headwinds, though momentum was slower than in the back half of last year. Year-ended growth eased from 2.5% to 2.1% but was a little stronger than forecast by the RBA (1.9%). 

The conflict in the Gulf was unable to be resolved by the MOU signed by the US and Iran, with energy supply through the Strait of Hormuz continuing to be disrupted. However, global growth held up much better than feared, rising by 0.5% in the June quarter across the OECD. AI-related investment was the key driver of growth, particularly in Asia.    

 

In Australia, growth slowed to 0.7% over the first half of the year, down from 1.4% across the back half in 2025. That largely reflects the shift from the public sector to the private sector as the major driver of growth. Governments are looking to tap the brakes on spending growth in a higher interest rate environment, while projects in the public investment pipeline have reached or are nearing completion. 

The data centre build out has had varying impacts on growth. Business investment has accelerated, though that has been partly offset by the ramp in imports required in the fit-out stage, with net exports contributing to the slowdown. But these facilities will support growth as they come on line. 

Another key theme has been the resilience of households, though there are plausible reasons for this. The halving of the federal excise tax lessened the impact of the fuel price shock on households, while the RBA's tightening cycle is yet to cycle through household cash flow. A cooling housing market also poses risks to consumption and dwelling investment. Tax changes to the treatment of capital gains and negative gearing in the May Federal Budget is another factor currently impacting the housing market.  

From the perspective of the RBA, the June quarter National Accounts will likely reaffirm some of its key judgements. Growth was a little stronger than expected at 2.1%Y/Y, around the pace it sees as the speed limit for the economy given the ongoing weakness in productivity growth (-0.2%Y/Y). Inflationary pressures remaining elevated - the GDP deflator was 3.1%Y/Y - is likely to be taken as a sign that capacity constraints are continuing, if not broadly then in certain areas of demand, such as business investment and housing construction. Domestic demand at 3.1%Y/Y remains well in front of headline growth. Those factors point towards the RBA following the market path in hiking the cash rate further.    

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National Accounts — Q2 | Expenditure: GDP (E) 0.3%q/q, 2.0%Y/Y 

Growth across the expenditure components was 0.3% in the quarter, matching headline growth. Annual growth eased from 2.3% to 2%.

Household consumption (0.4%q/q, 1.8%Y/Y) — Remained resilient lifting by 0.4% in the quarter and 0.8% across the first half of the year. Robust labour market condtions and the federal excise tax cut on fuel supported consumption. However, cost-of-living pressures, higher interest rates, and global tensions have been headwinds. Annual growth is now 1.8%, its weakest since early 2025.

The Gulf conflict and fuel surcharges weighed heavily on travel, most notably to northern hemisphere destinations where departure numbers fell for the first time since the pandemic. Despite this, discretionary-related spending was still the major driver of consumption growth, rising 1.4% in the quarter (1.7%Y/Y). That came on the back of a 10.3% surge in vehicle purchases during the quarter, with EV sales reaching record highs amid the fuel price shock. Essentials consumption declined in the quarter (-0.3%), with households appearing to limit energy usage (-6%) given the crisis in the Gulf and after government rebates had ended.

Robust labour market conditions - notwithstanding a slight uptick in the unemployment rate to 4.4% in the quarter - continued to support household incomes, underpinning the resilience in consumption. Gross income lifted 1.6% and 6.2% year-on-year. That had to absorb the impact of RBA rate hikes - interest payments rose 10.4% (11%Y/Y) - and higher income tax, up 0.4% (8.1%Y/Y). As a result, disposable incomes rose by a more modest 1.1% in the quarter (5.5%Y/Y). 

After adjusting for inflation (the consumption deflator rose 0.6%q/q and 3.1%Y/Y) real incomes increased 0.6%q/q and 2.4% through the year. That outpaces the growth in consumption (1.8%Y/Y) and may reflect the level of caution amongst households implied by very weak sentiment readings. What is clear is that households have been reluctant to reduce saving. The household saving ratio was little changed at 6.5%, in line with its average of the past year.    

 

Dwelling investment (1.6%q/q, 5.8%Y/Y) — The upswing in residential construction activity continued with a 1.6% rise in the latest quarter, lifting annual growth from 4.2% to 5.8%. However, headwinds to the sector are intensifying with higher interest rates, declining housing prices, cost pressures and changes to long-standing tax concessions all in the mix. Softening housing market conditions are weighing on ownership transfer costs (fees associated with housing transations), which fell 5.9% across the first half of 2026.    

New home building lifted by 1.7% in the June quarter, working up 6.3% through the year - its fastest pace in two years. However, momentum here was clearly slower in the opening half of the year (1.8%) than in the back half of 2025 (4.4%). By contrast, alterations (1.4%q/q) accelerated through the first half of the year (5.2%).   

Business investment (-0.5%q/q, 10.5%Y/Y) — Eased back in the June quarter (-0.5%), unable to advance after surging very strongly in the March quarter (6.2%). Still, annual growth in business investment was unchanged at 10.5% and has been the major driver of economic growth over the past year as the data centre build out has ramped up. 

Although non-dwelling construction (3.5%) saw its fastest quarterly rise in 2½ years from ongoing work on data centres and renewable energy and mining projects, that was offset by weakness elsewhere. Machinery and equipment investment moderated from the rise in the previous quarter (14.6%) to be down 5.6%. Meanwhile, cultivated biological resources fell 3.4%. 

Public demand (0.2%q/q, 1.9%Y/Y) — The impulse to growth from public demand is soft, having cooled materially over the past couple of years. In the June quarter, public demand rose 0.2%. That was only a partial rebound after declining in Q1 (-0.5%), resulting in a 0.3% contraction over the first half of 2026. In the latest quarter, government spending rose 0.6%, led by non-defence portfolios. Public investment fell 1.3% as major projects continued to wind down.

Inventories (-0.1ppt in Q2, -0.2ppt yr) — Inventory levels increased very marginally in the June quarter ($0.1bn) following a larger rise in the March quarter ($0.7bn). The change between the two (-$0.6bn) saw inventories deduct 0.1ppt from growth in the June quarter. Non-farm inventories fell (-$0.6bn) as exports in the mining sector recommenced following port closures due to cyclone activity in Q1. However, wholesale and retail inventories rose due to strong EV demand.   

Net exports (0.1ppt in Q2, -0.8ppt yr) — Net exports added to growth for the first time since the December quarter of 2023, albeit contributing just 0.1ppt to GDP. This result reflected a rebound in exports (0.8%) after falling in Q1 (-1.1%) and imports slowing (0.5%). 

Exports were supported by resources (2.5%) after cyclones hampered port operations earlier in the year. Coal exports (11.8%) were the major driver. However, reduced inbound travel amid the Gulf conflict weighed on services (-1.5%). Imports held up to post their 8th consecutive rise. Despite the disruption to global energy supply from the closure of the Strait of Hormuz, fuel imports still lifted by almost 6%, but the major driver was surging vehicle imports, notably EVs (37.6%). Services imports weakened sharply (-4.9%) as Australians shelved overseas travel plans due to the uncertainty and disruption in the Gulf.       

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National Accounts — Q2 | Incomes: GDP (I) 0.5%q/q, 2.1%Y/Y 

The GDP income estimate increased by 0.5% in the June quarter and 2.1% year-on-year, down from 2.5% previously. Wage incomes continued to be supported by robust labour market conditions, despite some loosening in the unemployment rate to 4.4% from 4.2% in the March quarter. The compensation of employees rose 1.5% quarter-on-quarter and 6% year-on-year. The public sector (1.8%q/q) continued to outpace the private sector (1.4%q/q), with the former boosted by scheduled pay rises to health care workers. 

Corporate profits rebounded in the June quarter as commodity prices increased and sales recovered after being disrupted in the March quarter by adverse weather. That drove private non-financial company profits to a 2.5%q/q rise (5.1%Y/Y), more than reversing their 0.9% fall in the previous quarter. Outside the mining sector, professional services and construction were key contributors. 

Financial sector profits maintained solid growth rising by a further 2.4% in the latest quarter, increasing by 10.2% through the year, a 3-year high. Expansion in loan books and net interest margins were the key factors. Gross mixed income - small business profits - remained under pressure falling for the second consecutive quarter (-1.5%) to be off 2.9% over the first half of the year. These firms may be suffering from a lack of pricing power, while input costs pressures (including from fuel prices) could also be relevant      

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National Accounts — Q2 | Production: GDP (P) 0.5%q/q, 2.3%Y/Y

The GDP production estimate increased by 0.5% in the quarter, while annual growth slowed from 2.8% to 2.3%. Output expanded in 14 of the 19 industries tracked by the ABS.

Business services made the strongest contribution growth in the quarter, rising by 1% and 4.1% over the year. That reflected demand for a range of professional services (2.3%) including engineering, management and AI-related services. The financial sector also contributed (1.3%) amid strong loan demand. 

Goods-related sectors rose across production (0.2%) and distribution (0.6%). Production was boosted by the mining sector (1.3%) as output recovered from the weather-related disruptions in the previous quarter. Construction also advanced (0.4%). In the distribution area, wholesalers (0.5%) and retailers (0.2%) benefitted from the strength in vehicle sales. The transport industry was still able to expand (0.9%) despite the fuel price shock.