Personal credit at 16-year lows

Petrol price; New car sales; Lending Finance

• Total lending (business, housing, personal and lease loans) rose by 2.2 per cent in September, after sliding by 5.2 per cent in August. Lending continues to track sideways.
• Annual growth of personal credit facilities like credit cards and overdraft facilities rose by 0.8 per cent on a year ago – the weakest annual growth rate in 16 years. Loans to buy blocks of land steady were down 27.8pct down on a year ago.
• Australian new car sales tracked lower in October. Car sales fell by 0.6 per cent in October after a 1.0 per cent rise in September. Passenger car sales fell by 1.6 per cent in the month.
• Sales of SUV’s rose by 1.5 per cent in October. Over the past year more than 233,000 SUV have been sold – the best result in records going back 16 years.
• According to the Australian Institute of Petroleum the national average retail pump price rose 0.3 cents a litre last week to 123.7 cents a litre. Over the next fortnight CommSec expects pump prices to trend towards $1.25 litre – especially given that the wholesale (terminal gate) price has hit three month highs.

What does it all mean?

• Lending finance is effectively a forward looking indicator of economic activity – given that any rise in borrowings will eventually translate to a pickup in spending and activity. Unfortunately the conservative attitudes of consumers and businesses have kept borrowings weak. Lending finance is down over 12 per cent compared with levels a year ago – marking the weakest annual growth rate in 19 months.
• The reluctance to take on debt is still a key part of the domestic landscape. Personal credit limits, in particular in overdraft facilities and credit card usage is growing at the slowest pace since the early 90’s. The weakness in consumer borrowings is likely to constrain activity in the near term.
• The overall weakness in lending adds weight to the argument for a period of interest rate stability. The Reserve Bank would be best served by staying on the interest sidelines until more timely economic data can be assessed – especially given that inflation looks to be well contained at present.
• New vehicle sales are effectively tracking sideways. After going through a period of consolidation over the first half of the year, then a modest pickup in activity over the past couple of months, signs of buyer caution are once again emerging. Passenger vehicle sales are effectively going nowhere, while the increase in sales of SUV’s continues to be offset by weakness in sales of trucks, utes and buses.
• In annual terms vehicle sales is still up just 3 per cent on a year ago. But what is staggering is that SUV sales are up almost 28 per cent on the same time last year. In fact sales of SUV’s have hit record highs with almost 234,000 vehicles sold in the 12 months to October.
• Unfortunately for motorists petrol prices are poised to track higher in coming weeks. The Aussie dollar has run out of steam and the regional oil prices are holding near seven month highs. Already the higher regional petrol price is starting to filter through domestically, with the wholesale (terminal gate) price rising to three month highs in the coming fortnight.
• CommSec expects petrol prices to drift higher with the national average price trending towards $1.25 a litre in the next fortnight.

What do the figures show?

Lending Finance:

• Total new lending commitments (housing, personal, commercial and lease finance) rose by 2.2 per cent to $50.3 billion in September. Over the first nine months of 2010 lending has eased by 4.2 per cent.
• All housing finance (owner occupier & commercial) rose by 1.0 per cent in September. Housing lending is 15.9 per cent lower than a year ago. Construction loans (investor and owner-occupier) rose by 0.6 per cent, however they are down 20.7 per cent over the year – the weakest annual growth rate in 25 months.
• Commercial finance rose by 2.7 per cent in September. Within commercial commitments, fixed lending rose by 0.5 per cent and revolving credit rose by 8.5 per cent. Commercial loans are down 12.6 per cent on a year ago.
• Personal finance rose by 3.5 per cent in September, after the 0.5 per cent fall in the prior month. Within personal commitments, fixed lending rose by 6.3 per cent while revolving credit rose by 0.9 per cent. Personal loans are up 8.6 per cent on a year ago.
• Drawdown’s on credit cards and overdraft facilities are grew at just 0.8 per cent over the past year – the weakest growth rate in 16 years.
• Within fixed lending, loans for the purchase of new and used motor vehicles were higher than a year ago. loans to buy blocks of land are steady at 8-month lows and are down 27.8 per cent on a year ago.
• Lease finance rose by 0.2 per cent in September and loans are up 5.6 per cent for the year.

Petrol prices:

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 0.3 cents per litre to 123.9 cents a litre in the week to November 15. The metropolitan price rose by 0.3 c/l to 123.7 c/l, while the regional average price rose by 0.1 c/l to 123.9 c/l.
• Petrol prices across states in the past week were: Sydney (down 0.4 cents to 124.0 c/l), Melbourne (up 1.2 cents to 123.9 c/l), Brisbane (down 0.3 cents to 125.5 c/l), Adelaide (up 0.7 cents to 122.1 c/l), Perth (up 0.3 cents to 120.3 c/l), Darwin (up 0.5 cents to 127.4 c/l), Canberra (down 0.2 cents to 124.8 c/l) and Hobart (up 0.9 cents to 128.8 c/l).
• The national average wholesale (terminal gate) hit an 11-month low of 111.6 cents a litre on October 1. However has since risen to a three month high of 116.4 cents today. The key Singapore unleaded petrol price rose by US43c (0.5 per cent) to US$93.20 last week. And in Australian dollar terms Singapore gasoline rose by 73 cents (0.8 per cent) over the week to $93.81 a barrel.

New car sales

• New car sales fell by 0.6 per cent in October after rising by 1.0 per cent in September.
• Passenger car sales fell by 1.6 per cent in the month, sports utility vehicles rose by 1.5 per cent while “other” vehicles (trucks, utes etc) were down 0.4 per cent. In annual terms “other” vehicle sales were down 10.3 per cent on a year ago.
• In rolling annual terms, a record 233,900 SUV’s have been sold in the 12 months to October. SUV sales are up 27.3 per cent on a year ago.

What is the importance of the economic data?

• Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.
• The Australian Bureau of Statistics (ABS) provides monthly estimates of car sales in seasonally adjusted and trend terms after receiving the actual sales data from the car industry. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum. National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions.

What are the implications for interest rates and investors?

• At present the impact of higher world oil prices has largely been absorbed via a strong currency. However given that the Aussie is likely to experience less robust gains, and higher regional prices are filtering through to domestic wholesale prices, pump prices are likely to lift in the near term. Motorists are likely to see petrol prices rise by 2-3 cents a litre over the next fortnight
• The recent interest rate hike is likely to keep domestic activity subdued in the near term. Lending finance is stagnating and a period of interest rate stability will be needed to entice consumers and businesses to increase borrowing levels and in turn boost activity
.

Source: Savanth Sebastian, Economist, CommSec