Australian dwelling approvals rise 7% in August

Australian dwelling approvals rebounded by 7% in August (vs 2.5% expected) following steep declines in June (-8.6%) and July (-7.4%). Approvals still, however, remain at low levels amid strong headwinds being faced by the construction sector from rising interest rates, capacity and cost pressures and weak sentiment.     

House (6%) and unit approvals (8.8%) lifted in August, only the second time in the past 12 months that both segments have risen together. For house approvals, this was its strongest rise since February. However, the bigger picture is that these approvals are down by more than 39% from their cycle high in early 2021.   

Higher-density approvals - inherently volatile - were up 8.8% coming off the back of falls just shy of 19% in June and July. Trends in approvals for this segment remain negative, particularly for high-rise developments. 

Approvals lifted across most states in August; however, Queensland was a notable exception seeing a large decline (-26.9%). Gains in New South Wales (12.5%) and Victoria (22.2%) were supported by capital city unit approvals, with house approvals also advancing. 

Alteration approvals eased back by 2.4% for the month but remained comfortably above the $1bn line, as has been the case for much of the period since early 2021. Strong demand for alterations during the pandemic and elevated construction and materials costs have been contributing factors. 

RBA remains on hold at 4.1%

The tenure of RBA governor Michele Bullock has commenced with the Board holding the cash rate steady at 4.1% (and the Exchange Settlement rate at 4%). This was the 4th meeting in succession in which rates have been left on hold, with today's decision announced in a near-identical statement to the one published after the previous meeting. The RBA is proceeding cautiously as the effects of its tightening cycle are becoming more visible, though it maintains more will be done if required. 

In essence, today's meeting looks to have been straightforward. Key data received over the past month has conformed to the RBA's previous assessments, allowing it to extend its pause. The outlook is for inflation to cool over the next couple of years, returning to the 2-3% target band in late 2025 as growth slows below trend and unemployment rises gradually. That outlook is due to be reassessed next month when the RBA will publish new economic forecasts. However, unless the inflation outlook deteriorates, it is hard to see why the Board would not remain on hold in November. Inflation data for the September quarter at the back end of the month (25/10) will hold the key.   

It is no surprise that the Board came out of today's meeting retaining the line that "some further tightening of monetary policy may be required..." conditional upon "the data and the evolving assessment of risks". Domestically, the key uncertainties are around household consumption and wage-price dynamics as tighter monetary policy takes its full effect. Offshore, risks to China's economy from the property market continue to be monitored closely by the RBA.

Australian housing finance rebounds 2.2% in August

Australian housing finance commitments lifted by 2.2% in August, largely reversing declines over the prior two months. Commitments in August ($24.8bn) were 8.6% above the cycle low in February, responding to an upturn in housing prices - despite higher interest rates - as strong post-pandemic population increase has run up against tight supply.  

The ABS has currently suspended its first home buyer series. 

The 2.2% lift in commitments in August broadly reversed the declines posted in June (-1.4%) and July (1.1%). Both the owner-occupier (2.6%) and investor segments (1.6%) contributed to the rebound. At $24.8bn, commitments have risen by 8.6% from the floor in February, with housing prices according to CoreLogic up 6.6% nationwide to September from their trough in January.

Aside from rising housing prices, increased loan volumes have also driven the rebound in commitments. In the owner-occupier segment, loan approvals to upgraders lifted by 1.8%m/m to be 10.6% above February's low; construction-related approvals increased by 6.7% but remain near 15-year lows.  

Investor commitments have seen a sustained rise from their low in February, increasing by 13.4% over the period to August. Very low vacancy rates and rising rents have clearly been supportive factors for investors. The ABS does not publish loan volume estimates for the investor segment.  

Refinancing saw a 3.9% decline in August; however, at $20.6bn refinancing activity remains very elevated as RBA rate hikes continue to flow through and fixed-rate mortgages roll over to higher variable rates. Around $14bn of refinancing activity to owner-occupiers was completed in August, with $6.6bn for investors going through. 

Preview: RBA October meeting

Although today's meeting will be the first overseen by the incoming governor Michele Bullock, the RBA Board is very likely to again leave the cash rate on hold at 4.1% (decision due at 2:30pm AEDT). Declining inflation and slowing growth have shown the Board that tighter monetary policy is working and with the full effects from the hiking cycle still in the pipeline, it has held rates steady at its recent meetings. The Board is expected to retain the guidance that "some further tightening of monetary policy may be required..." with inflation not forecast to return to the 2-3% target band until 2025.  

For a data-dependent RBA Board, any further rate hikes will need to clear a high bar. With a substantial 400bps of accumulated tightening delivered since May last year, the onus has been put squarely on the incoming data and related developments to prove that a cash rate setting of 4.1% is not appropriately restrictive. Since the September meeting, the incoming data looks to have been broadly consistent with the RBA's existing assessments.  

While untimely, the rise in headline inflation from 4.9% to 5.2% in August on the back of higher petrol prices does not seem a material development. The September meeting minutes effectively showed that the Board was expecting this to occur and that it indicated that "the process of returning inflation to target could be uneven". Speaking to this point, while headline inflation moved back up in August, CPI excluding volatile items (petrol, fruit and vegetables) declined from 5.6% to 5.3%. More broadly, a disinflationary process is continuing to play out, making the RBA's forecast for 4% inflation by the end of the year still plausible. 

The June quarter national accounts - released the day after the previous RBA meeting - reaffirmed that households are pulling back in response to cost of living pressures and rising interest rates, driving a slowdown in growth in Australia. A 0.4% expansion in Q2 GDP saw growth through the first half of the year come in at a subdued 0.7%, down from 1.3% in the back half of 2022. Against this backdrop, the labour market has eased from peak tightness; however, conditions are still robust, underscored by a rebound in employment (64.9k) holding the unemployment rate at a historically low 3.7% in August alongside record-high labour force participation (67%).

One aspect of the labour market that remains under close watch is wages growth. Some of the upward pressure on wages growth has been reduced due to the easing in the labour market. But with the June quarter national accounts reaffirming weakness in productivity, unit labour costs remained elevated, presenting upside risks to the inflation outlook.  

Macro (Re)view (29/9) | Q3 headwinds set to persist

A tough Q3 came to a close this week, a quarter in which a significant shift higher in long-end US yields weighed heavily on equity valuations and was a tailwind to the US dollar. The outlook for a more extended period of an elevated Fed policy rate is a theme that is resonating with central banks in other countries with inflation still well above their respective targets.

Despite an uptick in Australian headline inflation, the RBA is likely to leave the cash rate (4.1%) unchanged for the fourth meeting in succession next week. A 9.1% surge in petrol prices saw the 12-month CPI rate rise to 5.2% in August from 4.9% in July (reviewed here). Excluding petrol and other volatile items, underlying inflation softened slightly from 5.6% to 5.3%. Compared to their late 2022 peaks above 8%, inflation has declined materially year to date - a key factor that has kept the Board from hiking further at recent meetings. With retail sales posting an underwhelming 0.2% rise amid the FIFA Women's World Cup (reviewed here) and job vacancies (-9.1%q/q) continuing to moderate from their post-pandemic highs, there were more signs this week that higher interest rates are contributing to cooling demand. 

  

Encouraging US inflation data has weakened the case for the Fed to hike rates further at its November meeting. The core PCE deflator - a key inflation gauge for the Fed - slowed from 4.3% to 3.9%yr in August, a low back to June 2021. More importantly, the recent momentum in both 3-month (2.2%) and 6-month (3%) annualised terms suggests a more rapid pace of decline is in prospect, leaving the Fed's forecast for a 3.7% core PCE inflation rate at year-end looking overdone. Meanwhile, historical revisions to GDP data have upgraded the strength of the recovery in the US from the pandemic. Momentum in the US has been solid through the first half of the year - 0.6% in Q1 and 0.5% in Q2 - with GDP expanding by 1.1% over the period. 

After only inching lower in recent months, euro area inflation fell materially in September. Headline inflation declined from 5.2% to 4.3%yr - a near 2-year low - and the core rate came down from 5.3% to 4.5%yr, with both outcomes exceeding the declines expected (4.5% and 4.8% respectively). Although higher oil prices pose a risk of disrupting this downward momentum, a strong disinflationary impulse is coming from the weakness in the euro area economy. This only validates the sentiment coming out of the ECB's meeting two weeks ago that rates have reached their peak. 

Australian retail sales slow in August

Australian retail sales lifted by 0.2% in August, disappointing expectations (0.3%) and slowing from a 0.5% rise in July. Discretionary-related sales at 0.5% month-on-month outperformed the headline result, boosted by the FIFA Women's World Cup and Afterpay sales promotions. Annual growth in retail sales has eased back to 1.5%, underpinned by rapid post-pandemic population growth of above 2% according to the various estimates. 

Soft trends in retail sales continued in August, with turnover slowing to a 0.2% rise and flatlining on a 3-month average basis. Cost-of-living pressures and higher interest rates are constraining spending, as the June quarter national accounts confirmed recently. That said, discretionary sales have posted gains of 0.9% in July and 0.5% in August. This has been supported by the Women's World Cup and it will be interesting to see if the domestic football finals can have a similar effect on September sales. Beyond that, discretionary spending could cool in October as households wait for Black Friday sales to come around in November. 

Looking across the board, the main weakness was in basic food (-0.3%) after a modest decline in the prior month (-0.1%). Household goods contracted a further 0.4% to be down 6.6% over the year, reflecting the post-pandemic rotation in spending to services. 

The boost from the Women's World Cup came through in clothing and footwear (1.3%) - on the back of spending on supporter gear - and cafes, restaurants and takeaway food (0.7%) - as Australians watched the tournament at venues, live sites and private gatherings. The 'other' retailing category (of which pharmaceuticals are a large component) lifted 0.7%m/m and department stores saw a 0.4%m/m rise, moderating from a rebound in July (3.6%). 

Australian CPI increases to 5.2% in August

Australian CPI inflation lifted off a 17-month low increasing to 5.2% in August from 4.9% in July, largely reflecting a spike in petrol prices. While this comes as an untimely elevation going into next week's RBA meeting, the underlying inflation gauges were flat to slightly softer in August.  

Petrol prices recorded their fastest monthly rise (9.1%) since May 2022, pushing up the 12-month headline inflation rate from 4.9% to 5.2%. Nonetheless, the bigger picture is that inflation is well down from the 8.4% peak at the end of last year, and that disinflationary process continued to play out in the September quarter. The past two monthly reports indicate that inflation is on track to come in a little above 5% (year-ended) in the detailed quarterly series in Q3, down from 6% in the June quarter.  

On an underlying basis, inflation held at 5.6% on the trimmed mean measure while it eased from 5.6% to 5.3% for CPI excluding volatile items (petrol, fruit and vegetables). These latest readings compare to their respective late 2022 peaks of 7.2% and 8.3%. 

Mainly due to the effect of higher petrol prices, goods inflation lifted from 4.4% to 5.1%yr. Services inflation remains more elevated but held at a 5.6%yr pace. Factors contributing to the faster pace of services inflation include rents (7.8%yr) and holiday travel and accommodation (6.6%yr). 

Macro (Re)view (22/9) | Higher for longer

Hawkish holds from the Fed and BoE were the highlights from a flurry of central bank meetings this week as the BoJ and SNB also left monetary policy unchanged. The key message from the Fed that restrictive policy will likely be required for longer in order to return inflation to target sent the US 10-year Treasury yield to highs back to 2007, a major headwind for risk assets. The latest PMI readings underscored the growth differential that exists between a resilient US economy and weakness in Europe and the UK. 

The Fed's decision to leave rates on hold in the 5.25-5.5% range this week was qualified by the signal that restrictive settings will be needed for longer, reflecting an outlook for stronger US growth. Updated economic projections showed FOMC members continue to see a final rate hike to a peak of 5.5-5.75% later this year remains in prospect, but the number of rate cuts implied by the 2024 projection has fallen to 2 (5-5.25%) from the 4 (4.5-4.75%) signalled previously. This revision has flowed through to drive the 2025 projection 50bps higher to the 3.75-4% range. 

In the post-meeting press conference, FOMC Chair Jerome Powell said recent data had prompted Committee members to upgrade their outlook for US growth. Forecast growth this year was raised materially to 2.1% from 1%, with stronger growth now also seen in 2024 at 1.5% (from 1.1%) while the 2025 forecast remained at 1.8%. On the back of this, the unemployment rate outlook has improved, ending the year at 3.8% (from 4.1%) before lifting only modestly to 4.1% in 2024 (from 4.5%) and remaining at that level through 2025 (from 4.5%). Thus while the outlook is for stronger growth and lower unemployment - despite tighter policy - the inflation forecasts were little changed, expected to still be firm to the 2% target on headline (2.2%) and core rates (2.3%) in 2025. 

Declining UK inflation paved the way for the Bank of England to hold rates steady at 5.25% at this week's meeting. In a very close call, a 5-4 majority of MPC members gave the green light to pause the hiking cycle, coming after a cumulative 515bps of policy tightening stretching back to December 2021. Meanwhile, the MPC set a new target of £100bn for balance sheet reduction over the coming year, an increase from £80bn over the past 12 months. 

Headline CPI eased from 6.8% to 6.7%yr in August; however, it was the fall in the core rate from 6.9% to 6.2% - backed up by softer services inflation (7.4% to 6.8%) - that was likely the decisive factor with the majority on the MPC. Also key was the observation that rates had already been increased to a restrictive setting and the full effects of this on the economy had yet to play out. This portends an extended pause from the BoE. Although further tightening has not been ruled out, the statement noted the approach will be to ensure that rates are "sufficiently restrictive for sufficiently long to return inflation to the 2% target...". 

More context around the RBA's tightening pause was provided in the September meeting minutes. Signs that tighter policy is weighing on demand and the lags of monetary policy were still to come are key factors keeping the Board on hold. Although the Board retains a tightening bias it is unlikely to be enacted. The Board assesses that the recent data flow "was consistent with inflation returning to target within a reasonable timeframe while the cash rate remained at its present level". 

Macro (Re)view (15/9) | ECB reaches peak

Signs the ECB's tightening cycle has peaked amid ongoing resilience in the US economy left the US dollar to continue its upward momentum. Improved activity data from China provided some support for the Australian dollar as did a rebound in the August labour force survey. Next week's calendar is highlighted by central bank meetings in the US, UK and Japan.  

August's US inflation data did little to shift the dial ahead of next week's Federal Reserve meeting. The FOMC is expected to leave rates unchanged at 5.25-5.5%, but markets are keeping alive prospects for a November hike on the basis that Fed officials may reaffirm their projection from June for a 5.5-5.75% terminal rate. Headline CPI lifted from 3.2% to 3.7%yr, largely due to a 10.6% surge in gasoline prices in August; however, a decline in the core rate from 4.7% to 4.3%yr suggests the underlying disinflationary process in the US continues to play out. Higher gasoline prices also boosted August retail sales to a 0.6% month-on-month rise, an upside surprise. But there were continued signs of resilience in the report as core sales (ex autos & gas) (0.2%m/m) and control group sales (0.1%m/m) defied expectations for declines. 

In what was a closely contested decision, the ECB hiked all key rates by 25bps (MRO 4.5%, MLF 4.75% and depo rate 4%) this week. But that was counterbalanced by strong indications that the tightening cycle has reached its peak. Faced with elevated inflation and an economy that has deteriorated to the point of stagnating, the hawkish section of the Governing Council got another hike across the line on the basis that it needed to "reinforce progress" towards its single mandate for 2% inflation. Further tightening looks unlikely. The Governing Council assesses that rates are now at levels that - if maintained for a "sufficiently long duration" - will "make a substantial contribution" in returning inflation to its 2% target.    

In the post-meeting press conference, ECB President Christine Lagarde would not be drawn on declaring a peak for rates, stressing the need to remain data dependent. That came as updated ECB staff projections raised the inflation outlook at the same time as lowering forecasts for growth. Due to higher energy prices, inflation is now seen at 5.6% this year (from 5.4%) and 3.2% in 2024 (from 3.0%). As with the June forecasts, inflation is still expected to be firm to the target in 2025 at 2.1% on a headline basis (from 2.2%) and 2.2% on the core rate (from 2.3%). Higher rates, weakening exports and fading momentum in the services sector have all contributed to lower forecast growth at 0.7% in 2023 (from 0.9%) and 1% in 2024 (from 1.5%). 

Australian employment rebounded by 64.9k in August - well above the top end of forecasts - confirming seasonal-related volatility played a major role in July's surprise decline (-1.4k revised from -14.6k). With employment regaining momentum, the unemployment rate held at 3.7% as the labour force participation rate lifted to a new record high at 67.0% (from 66.9%). My assessment is that rapid population growth is supporting both labour demand and labour supply, giving reason to remain optimistic on the outlook for the labour market (more insights here). 

Australian employment 64.9k in August; unemployment rate 3.7%

Australian employment rebounded well above expectations in August, but the unemployment rate held at 3.7%. The overlay of rapid post-pandemic population growth continues to support labour demand and add to labour supply, with the participation rate rising to a new record high in the month.

August by the numbers...

• Employment increased by 64.9k (on net), rebounding from a 1.4k fall in July (revised from -14.6k initially reported). Consensus was for a 25k rise.   

• The headline unemployment rate remained at 3.7% (vs 3.6% expected). Both underemployment (6.6% from 6.4%) and underutilisation (10.2% from 10.1%) increased in August.   
• Australia's labour force participation rate reset to a new record high at 67.0%, up from 66.9% previously (revised from 66.8%). 

• Hours worked declined 0.5%m/m, with base effects lowering the annual pace from 5.2% to 3.7%. 

The details...

Employment rebounded strongly by 64.9k in August, confirmining that July's decline (-1.4k) was driven by post-pandemic volatility in hiring patterns. Part-time employment accounted for much of the rise lifting by 62.1k - its strongest outturn since November 2021. Full time employment saw a 2.2k rise following a decline of 18.7k in July. 

As a result of upward revisions and the August rebound, the momentum in employment growth remains solid. Employment gains have averaged 30.3k over the past 3 months, running an at annualised pace of 2.6% over the period. 

Although employment far exceeded consensus, the unemployment rate held at 3.7% - disappointing expectations for a decline to 3.6%. However, that forecast was based on a participation rate 0.3ppt lower than the record high that printed in August at 67%. Modest rises in underemployment and total underutilisation over recent months are consistent with some loosening in the labour market, but conditions remain robust overall. Best summarising conditions, the employment to population ratio - the share of Australians in work - remains on the highs for the cycle at 64.5%. 

Hours worked were reported to have declined by 0.5% in the month, to me a surprising outcome given the strength of employment. Although some may argue this links to the softness in full time employment (2.2k), consider that hours worked actually rose in July (0.2%) when full time work declined by 18.7k. This all looks to be reflecting month-to-month volatility rather than giving any signal. 

In summary...

Today's report reflected a solid analysis of the labour market all told. The most important aspect was that employment came through with the expected rebound after falling in July, a decline that was very modest after revisions. The unemployment rate holding at 3.7% and a softening in broader measures of spare capacity should be enough to extend the RBA's pause further. While expectations are that the unemployment rate will drift higher over the next couple of years, I am more optimistic than the trajectory forecast by the RBA to 4.5% unemployment. Momentum in employment is running at a sustainable pace and I think strong population growth is a factor that will keep labour demand supported.   

Preview: Labour Force Survey — August

Australia's Labour Force Survey for August is due at 11:30am (AEST) today. Coming off a weak month in July, employment is expected to return to its earlier momentum with a 25k rebound. The unemployment rate is seen falling back to 3.6%, just above 50-year lows with labour force participation holding near record highs. 

Labour market activity was surprisingly weak in July...

The labour market hit turbulence in July as employment unexpectedly fell by 14.6k (vs +15k forecast), driving up the unemployment rate from 3.5% to 3.7%. This was the weakest employment outcome since the 2021 pandemic lockdowns - coming against the run of play from the strength in employment in the June quarter (103.2k).  

... likely due to seasonal factors

In addition to the uptick in unemployment, the participation rate declined from 66.8% to 66.7%. The weakness on both the demand and supply side appears to be linked to seasonal volatility in the post-pandemic labour market. The ABS highlighted it had detected changes in hiring patterns compared to historical trends, with school holidays falling during the survey period for the July series. A similar dynamic occured in April when employment also fell (-4.7k). Hours worked softened from a 0.4% lift in June to a 0.2% increase in July (5.2%yr). 

A rebound is expected in the August report...

Employment is anticipated to rebound by around 25k in August, although economists' estimates vary significantly from -20k to 50k. A fall in the unemployment rate from 3.7% to 3.6% is forecast (range: 3.6% to 3.9%), based on the participation rate remaining broadly unchanged (66.7%). The ABS's payrolls series provides support for the expected rebound. The payrolls index stabilised over the month to mid-August, improving from a decline (-0.3%) for the month to mid-July. 

... as employment growth remains key 

Amid rapid post-pandemic population growth and with labour force participation around record highs, sustaining solid momentum in employment growth is key to preventing a rise in unemployment. The RBA forecasts an uplift to 4.5% unemployment in a couple of years' time as below-trend economic growth leads to slowing employment gains. In my articles, I have highlighted that a more optimistic situation could evolve in which population growth keeps employment supported for longer than anticipated. Job vacancies are off their highs but remain elevated, consistent with an outlook for still-robust labour demand.  

Macro (Re)view (8/9) | RBA pause validated

Equities lost steam this week as US tech weighed on broad sentiment. The US dollar has continued to climb with the relative strength of the US economy seeing Fed rate cut prospects for 2024 being scaled back. Higher oil prices may have been key to bond yields trading with an upward bias over recent days. Next week's highlights include US CPI, the ECB's meeting, activity data from China and labour market updates in the UK and Australia.   

The RBA held the cash rate unchanged at 4.1% for the third meeting in succession this week (reviewed here) - the final meeting of Governor Philip Lowe's 7-year tenure. Signs that higher interest rates are gaining traction in bringing down inflation and slowing demand are keeping the Board on hold - consistent with its data-dependent reaction function. Although the Board maintains that "some further tightening of monetary policy may be required..." rates increasingly look to be at their peak in Australia. Markets anticipate the RBA will hold rates at this restrictive setting until well into next year - the timing of the first rate cut is currently priced to come in the final quarter of 2024. In his closing remarks speech, Governor Lowe forecast that inflation would be subject to increased variability - reflecting deglobalisation, climate change, energy transition and supply shocks - and that closer alignment between monetary and fiscal policy would be beneficial in managing inflation in that context.   

Australian GDP growth came in at 0.4% in the June quarter and 2.1% through the year. While the domestic economy remains resilient to headwinds here and offshore, growth slowed noticeably over the first half of 2023 (0.7%), validating the RBA's pause. Household consumption nearly stalled at 0.1% in the quarter under the higher cost of living - accentuated by rising interest rates and increased income tax liabilities. These pressures are binding on discretionary consumption (-0.5%q/q), which contracted over the first half of the year (-0.7%). Please take a look at my In review feature article covering the June quarter National Accounts for detailed insights on the Australian economy here.  

Many Federal Reserve officials gave their assessment on US rates this week, the general consensus validating expectations for a tightening pause at the September meeting. NY Fed President Williams perhaps summed up sentiments best by observing that monetary policy was "in a good place" with inflation coming down and supply-demand pressures in the economy easing - but that the FOMC needed to ensure this progress continued by remaining data-dependent. While a September pause is considered a done deal, markets are keeping the door open for a rate hike in November. Next week's CPI data will therefore be closely watched. Base effects are expected to see headline CPI firm from 3.2% to 3.6%yr in August, so markets are more likely to key off the core rate and this is forecast to ease from 4.7% to 4.3%yr. 

In Europe, attention is focused on next week's ECB meeting - anticipated to be a close call between a hold or a 25bps hike from the Governing Council. For a single mandate central bank of 2% inflation, additional tightening remains in prospect in spite of further signs of deterioration in the euro area economy. Q2 GDP growth was revised down to 0.1% from 0.3% and the composite PMI for August (46.7) indicated economic activity was deteriorating at an increased pace, while July retail sales fell 0.2%m/m (-1%yr). Bank of England Governor Andrew Bailey told the Treasury Committee this week that rates were "much nearer" their peak amid signs that inflation will continue to fall. UK wage and employment data will be important next week with markets leaning in the direction of a further two BoE hikes to a peak of 5.75%.  

Australia's trade surplus narrows to $8bn in July

Australia's trade surplus was $8bn in July, below expectations ($10bn) and narrowing from $10.3bn in June (revised from $11.3bn). This was the nation's smallest monthly trade surplus since February 2022. Falling exports (2%) and rising imports (2.5%) drove the narrowing in the trade surplus. 

Following a 3.1% fall in June, exports declined a further 2% in July to $53.9bn, down 2.8% on 12 months ago. This month, volatile non-monetary gold (-31.9%) was the major factor. Declines in key commodity prices weighed on non-rural goods (-1.4%), with the value of these exports retracing substantially over the past year (-9.9%). Rural goods lifted 7.7%m/m to remain at elevated levels. Although lower prices have seen cereal exports decline, strong demand is supporting meat and other rural goods exports. 

Services exports softened in July (-1%) but are now in an expansionary phase having recently recovered from their pandemic-induced fall. This reflects the return of overseas visitors coming to Australia for holidays and to study.  

Imports lifted 2.5% in July ($45.9bn), mostly reversing a 3.3% fall in June. Broad-based strength was evident with goods (2.9%) and services (1.3%) advancing. Goods imports were supported by consumption goods (6.9%) - as vehicle imports rebounded (24.7%) - and capital goods (4.2%) on the back of telecommunications equipment (8.1%). By contrast, weakness came through in intermediate goods (-1.5%), which largely reflected a 4.9% side in fuel imports on lower prices. 

Services imports are up by a sharp 7.2%yr, with tourism services leading the way (39%yr). There was a further 1.3% lift from services in July as tourism rose 3%. Demand for overseas travel to Europe was very strong during the Australian winter.