The Australian Economic Building Bust



From: David John Bradshaw

Australian Financial Review
April 3 2002
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Building boom goes bust
Apr 3 12:14
Jim Parker
Australia's home building boom has come to a crunching halt, according to official figures on Wednesday, providing immediate vindication for the Reserve Bank's earlier decision against raising interest rates just yet.

But strong consumer spending flowing from the surge in housing activity last year is still boosting imports and driving a widening in the nation's trade balance.

Building approvals fell by a seasonally adjusted 3.7 per cent in February, the Australian Bureau of Statistics said, weaker than market forecasts of a 1.0 per cent decline. In trend terms, approvals were down for a fifth consecutive month.

Economists said the scaling back of the Federal Government's first-home buyers' subsidy from January, the threat of higher interest rates and the satisfying of pent-up demand all suggested the housing cycle had peaked.

That in turn provided a rationale for the RBA in moving cautiously in withdrawing the interest rate stimulus it injected into the economy last year.

"If the housing cycle is coming off, that will take some of the steam out of the economy and the steam out of house prices and maybe is a reason for the RBA to hold back a bit longer," said Commonwealth Bank chief economist Michael Blythe.

"One of the lessons of 2000 was the RBA started raising rates just as the housing cycle was tipping over and basically hit it over the head with a sledgehammer and we had a huge slump as a result."

The RBA earlier left official interest rates unchanged in the wake of its monthly board meeting on Tuesday, signalling it will leave its widely anticipated rate increase until May at the earliest.



The bureau of statistics also announced on Wednesday that Australia recorded a trade deficit of $604 million in February, higher than market forecasts of $500 million and after a $233 million shortfall in January, revised from $308 million.

The February deficit was due to a flat performance by goods and services exports, alongside a 3 per cent rise in imports.

Rural goods exports actually rose by 9 per cent, but this was offset by a 4 per cent fall in non-rural and other goods.

Consumption goods drove the strength in imports, rising 7 per cent, while capital goods fell marginally and intermediate and other goods rose by 1 per cent.

Australia's worsening external trading position is a function of its economy outgrowing those of its trading partners.

The prospect of stronger world growth later this year may help to improve the nation's trading fortunes, although the stronger Australian dollar may offset that impact by hurting the competitiveness of exporters and making imports cheaper.

The strength of the housing market has been a significant contributor to the resilience of the domestic economy in the past year in the face of a global downturn.

As well as the direct impact of increased home building on the housing industry, there are multiplier effects throughout the economy via increased spending on household goods and services.

But economists warn that a levelling out in construction activity, together with the dampening effects of rising interest rates and oil prices, should act as a brake on the economy later this year.

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Reply: 1
From: Paul Zagoridis

While I agree with most of this article I find it laughable that seasonally adjusted figures are still the headline number.

Paul Keating popularised the use of seasonally adjusted figures to defend his management (?) of the economy.

The trouble is you cannot live in seasonally adjusted homes nor spend seasonally adjusted income.

Dwelling units approved fell by 3.3% Jan 2002 to Feb 2002, but are up 37.7% year on year (46.9% seaonally adjusted).

The balance of payments figures are the greater concern. But if international demand picks up in months to come as the world emerges from recession, then our BoP figures should improve remarkably.

Revisions are another thing to watch out for. Occasionally you'll see a fall like this following a rise "last month". Only to discover "last months" rise gets revised to a fall and so you may or may not have a fall after all. Don't worry if you don't follow it -- I'm being pedantic again.

Here's the link for the underlying report.!OpenDocument

On 4/3/02 5:32:00 PM, David John Bradshaw wrote:
>Building approvals fell by a
>seasonally adjusted 3.7 per
>cent in February, the
>Australian Bureau of
>Statistics said, weaker than
>market forecasts of a 1.0 per
>cent decline. In trend terms,
>approvals were down for a
>fifth consecutive month.

Paul Zag
The Oz Film Biz site is archived at...
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