Saturday, May 23, 2009

Australian & New Zealand Weekly : Consumer House Price Expectations

Week beginning 25 May 2009

  • Australia: the big picture economic and market outlook
  • Australian consumers' house price expectations
  • NZ Govt Budget: stakes high with AA+ rating on the line
  • Heavy data week across the board
  • Aus data: leading index, CAPEX, construction, credit
  • NZ data: trade, bus conf, infln expectations, dwelling consents
  • US data: regional mfg surveys, home sales, durable orders
  • Key economic & financial forecasts.

The Big Picture - Economic and Market Outlook

I am visiting our European and UK customers over the next two weeks and set out below is the Executive Summary of the associated marketing document.

"The Australian economy is now in recession. Westpac's forecasts are close to the Reserve Bank's and the Government's. We expect that the economy will contract in each of the first three quarters of 2009 to be followed by a particularly anaemic recovery beginning in the December quarter. Growth of around 0.2% is expected for the December quarter with the first half of 2010 showing only a 1.5% annual pace. Westpac, the RBA and the Government expect growth in the second half of 2010 to improve to a still below trend 3% annualised pace. That growth pace will put no pressure on resources with ample spare capacity being accumulated as the unemployment rate increases from the current 5.5% to near 9% by end 2010.

We expect that under such a benign recovery environment there will be scope for the monetary authorities to cut rates by a further 1% while there will be no pressure to raise rates until 2011. With markets priced for flat rates in 2009 and rate hikes totalling around 100 bp's in 2010 from early 2010 there is scope for fixed rates to fall and some downward pressure on the AUD. That pressure will be supported by the expected market disappointment at the pace of the global recovery as the slow recovery in the global financial system constrains the capacity of economic agents to finance any increase in demand that may result from the aggressive fiscal and monetary stimuluses.

Australia's economic environment over the course of 2009 will be marked by falling business investment and a contraction in jobs. Businesses tend to respond to a slowdown to the growth pace of their sales and profits with a lag of around 6-12 months. Consumer spending was particularly weak throughout 2008 and despite aggressive rate cuts and Government handouts is expected to remain very weak in 2009. In fact, we estimate that the Government is expecting three consecutive quarters of contracting consumer spending in 2009. However the big jolt will be in business investment and employment. Collapsing confidence; limited credit availability; and weak sales and profits will see businesses cutting right back on investment and employment plans. The slowdown will initially be concentrated in non residential construction and equipment. Approval data points to a sharp runoff in mining investment in 2010. Jobs growth typically lags spending by 6-12 months and while we expect the most severe period of job losses to be over the next 12 months the unemployment rate is unlikely to peak until well into 2011. The first sectors to emerge from the recession will be cyclical spending including housing and motor vehicles. Those folks who are currently sharply building their savings with the prospect of losing their jobs will gradually relax that behaviour as they become increasingly confident about job security if they "survive the danger period". However, the financial crisis will delay the normal recovery time for these sectors as credit for multi unit developments and motor vehicles remains tight.

Australia's capital markets are set to take on a very different character as private sector demand for credit contracts and the supply of Government bonds explodes. Australia's supply of Commonwealth Government bonds is expected to increase from around $50bn to near $200bn by 2012 while the supply of semi government securities is expected to increase from around $100bn to $200bn over the same period. However, Australia's prospects of returning to budget surpluses by 2015 are reasonable. That would allow for the volume of net debt to peak at around 14% of GDP compared to 80% with doubtful prospects for stability in the majors. Nevertheless yield curves are likely to steepen as central banks deal with the immediate concerns of avoiding deeper recessions and keep short rates low while markets look towards a burgeoning bond supply. We do not expect central banks to see the need to start raising rates before 2011 when they will make aggressive moves to return to neutral (rates up around 3% in both Australia and US). That will see an appropriately sharp bear flattening of the global curves.

The timing of Australia's return to pre recession levels of activity is expected to be midway between that which would be expected for a typical commodity price/interest rate/fiscal policy driven recession and a full blown financial crisis style recession. It is true that Australia's banking system is sound but there are other aspects to a financial crisis which are affecting Australia. These primarily relate to Australia's over reliance on foreign capital through the direct involvement in the domestic economy of foreign banks and the banks' excessive funding reliance on foreign capital markets. Restrictions on the supply of new credit and a sharp rise in funding costs are both constraining economic activity through reduced availability of credit and sharply higher funding costs.

The strong balance sheets of the domestic banks and the predominant floating rate nature of the Australian mortgage market have allowed an efficient pass through of aggressive easing in monetary policy to private sector borrowing rates. That has substantially improved the potential cash of borrowers while aggressive fiscal stimulus has supported that position. Not surprisingly, households have sharply increased their savings to improve balance sheet quality in expectation of rising unemployment. Large rate cuts have also substantially improved the affordability of housing. Improvements in affordability in the US and the UK have mainly come from price reductions. A strong loop back effect on the Australian economy from tumbling house prices to confidence; wealth; jobs and financial stability remains a risk but we expect that affordability has now improved sufficiently to sustain house price stability.

We are sceptical about the outlook for commodities. The recent 30% rise in base metal prices should not be seen as the beginning of a strong cyclical up swing. This move, in our opinion, reflects a recovery from the excessive pessimism earlier in the year when markets feared the nationalisation of the US banking system and questioned China's capacity to engineer a recovery. That Chinese recovery is now underway through a boom in infrastructure investment. With exports contracting rapidly and mixed evidence of a recovery in property markets the challenge for China will be to broaden the recovery from the public to the private sector. Certainly, the spending multipliers of infrastructure investment are low. The spectacular growth in bank lending must also be tested for its degree of penetration into the private sector with concerns that the low risk state owned enterprises are dominating the supply of credit. However China cannot engineer a sustained recovery in commodities on its own. Our view is that because the recovery in the developed economies will be slow and patchy, prospects of a sustained upswing in commodity prices in the near term are limited".

Australia: Consumer House Price Expectations

The Westpac-Melbourne Institute Consumer Sentiment survey included an extra question in May on consumer expectations for house prices over the next 12 months. Overall, a net 0.6% of respondents expected prices to decline with pessimists marginally outnumbering optimists. A third of respondents expected prices to stay the same, with 32.7% expecting them to fall and 32.1% expecting them to rise.

Within this roughly balanced national result however, there were wide divergences across states and segments.

Consumers in NSW and Victoria were notably more bullish on prices with a net 6.9% and 2.1% expecting prices to rise respectively. Victoria also had the highest proportion (9.2%) picking strong price gains of over 10%.

In contrast, consumers in the resource states were much more downbeat with a net 12.3% in Queensland and 2.7% in WA predicting price declines. WA had the highest proportion of 'extreme' pessimists with 9.4% of respondents picking a decline of 10%+.

Respondents in the 18-24 year old and 25-34 year old age groups were significantly more upbeat, while those in the 45-49 year old group were by far and away the most pessimistic (a net 23.2% expecting price declines).

Similarly, those on low incomes (under $30k a year) were the most bullish on prices while those in mid ($61-70k) and higher ($81-100k) income ranges were more pessimistic on prices. Consumers that were renting were also notably more pessimistic on prices than those that owned their home, particularly owners without a mortgage.

The results tie in well with other observations on Australia's housing markets - namely, the much sharper improvement in affordability and rental yields in Sydney, the greater resilience of the Victorian housing market to date, and the more pronounced falls in house prices in WA and in dwelling construction activity in Queensland.

Segment-wise, the differing views match the performance of different buyer segments - the relative optimism of young, low income households gels with the surge in demand from first home buyers and the rising prices in this part of the market.

Perhaps most notable though is the degree of pessimism in segments that typically drive investor housing demand (45-54 year old's and mid to high income groups). Despite record low interest rates and rising rental yields, demand from investors has remained subdued to date. Price expectations appear to have been the crucial 'missing ingredient' with potential buyers in this segment still clearly very wary about the potential for significant price declines.

Australia: Data Wrap

May Westpac-MI Consumer Sentiment

  • The Westpac Melbourne Institute Index of Consumer Sentiment fell by 4.3% in May from 92.7 in April to 88.8 in May.
  • The key factor behind the fall in the Index would have been consumers' assessments of the Federal Budget released the day before the survey was conducted. Indeed, it is reasonable to say the Index has shown its most negative response to a Budget in the last ten years. That said, the result is not so surprising given the difficult economic circumstances in which the Budget was framed and the fall, while large for a recent post Budget periods, is not particularly significant in the context of historical volatility.
  • Amongst the components of the Index there were large falls in categories associated with consumers' assessments of their own financial position - “Family finances vs a year ago” was down by 7% and “Family finances over the next 12 months” fell by 7.3% - and “economic conditions over the next 5 years” which aws down an extraordinary 13.6% (the second largest fall in this typically stable component in the last ten years). Consumers were clearly unnerved by the sharp rise in the government's deficit and associated ballooning in national debt. In contrast there was a 7.3% increase in the component, “is now a good time to buy a major household item”. Consumers are responding to the current improvement in their cash flow from the fiscal stimulus and rate cuts but concerns about their overall finances may constrain their spending activities.

Q1 wage price index

  • The Wage Price Index rose 0.8% in the March quarter, in line with market expectations. That saw annual wages growth ease a touch to 4.2%, down from 4.3% in Q4. Annual growth in the private sector component of the index eased to 4.1%, down from 4.3% last quarter. The slowdown, in response to the weaker economic environment, is underway. This comes as no surprise and was expected by the RBA.
  • The downward pressure on wages growth is particularly apparent from the broader wage measure - that is, including bonuses. On this basis, annual growth in private sector wages dropped to 3.7%, down from 4.2% in Q4 and well down from a peak of 4.9% back in 2008Q1. The current pace of 3.7% is just a fraction above the historic average of 3.6% (this series dates from 1998).
  • On an industry basis, the slowdown in private sector wages growth is evident in the cyclical sectors of mining (to 5.6% from 6.6% in 2008Q2) and manufacturing (to 3.5% from 4.5% in 2007Q3). On a state basis, the loss of altitude is most apparent in the once booming mining state of WA where private sector annual wages growth has eased to 5.3% from 6.4% in 2007.
  • With unemployment set to climb above 8% and remain elevated throughout 2010, the outlook is for a further moderation in wages growth.

May MI Consumer inflation expectations

  • Consumers' median inflation expectation declined to 2.3% from 2.4%. In trend terms, median expectation consolidated at 2.2%, unchanged from April. That's a sharp improvement from 5.2% a year ago and is the lowest level since 1998. The last time expectations were sub 2% was in 1994.
  • The downtrend in expectations has occurred against the backdrop of moderating headline inflation. The ABS estimate that annual inflation slowed to 2.5% in the March quarter, whereas a year earlier it was running at 4.2% and heading to 5%. May Westpac-MI consumer unemployment expectations
  • The unemployment expectations index improved in May, declining by 1.0%. The index has now declined by 5.2% from its February peak. Unemployment expectations moved sharply higher from September 2008, jumping 33% over 5 months. That coincided with the global melt down. Similarly, recent evidence of a stabilisation in the world economy has triggered an improvement in domestic sentiment.
  • Even with the 5.2% improvement in the index, consumers are expecting the unemployment rate to rise substantially. We note that annual trend employment growth slowed to just 0.3% in April. Prospects are for employment to contract over the year ahead and for the unemployment rate, currently at 5.4%, to climb - most likely above 8%.

Apr motor vehicle sales

  • Vehicle sales rose 0.9% in April, their first monthly rise since June last year (when the increase in luxury car tax induced a mild pull-forward in demand) and their biggest rise since March 2008. Combined sales of passenger vehicles and SUVs rose 2.2%mth, the strongest gain since January 2007. This follows a cumulative slump of 24% since late 2007. Though tentative, the uptick does concur with improved readings on the 'time to buy a car' question from Westpac's consumer sentiment survey (currently holding at 135, the highest level since October 2007 and up 41% on May last year). Sales remain weak in the business dominated 'other' vehicles category, down 3.5% in April and over 25%yr.

Round-up of local data released last week

Date Release Previous Latest Mkt f/c
Tue 19 RBA Governor Stevens - - -
RBA minutes of May meeting - - -
Wed 20 May Westpac-MI Consumer Sentiment 92.7 88.8 -
Q1 wage price index 1.2% 0.8% 0.8%
Apr merchandise imports, AUDbn 17.3 16.2 -
Thu 21 May MI Consumer infl ation expectations 2.4% 2.3% -
May MI unemployment expectations -3.6% -1.0% -
RBA monthly bulletin - - -
Apr motor vehicle sales -3.3% 0.9% flat

New Zealand: Week ahead & Data Wrap

Reining it in

The events calendar for New Zealand turns heavier over the next week, with the key event being the new National Government's first Budget on Thursday.

The stakes are high for this year's Budget. Government revenues are falling dramatically as the global downturn hits the domestic economy hard, while the legacy of the previous Government's bigspending ways is that expense growth is well entrenched and rising. If previously budgeted increases in new spending were retained, it is expected that operating deficits would reach $10bn per year indefinitely and that Crown gross debt would hit 45% of GDP by 2013 (from 17.5% in 2008) and 70% by 2023. For a small economy that is already highly dependent on foreign funding, that is an untenable situation. Standard & Poor's has already stated that the Government will need to convincingly demonstrate how it intends to rein in spending, in order for New Zealand to retain its AA+ credit rating.

The economic backdrop underpinning the fiscal outlook has deteriorated further since the December economic and fiscal update, and is downright ugly relative to the last full set of forecasts released in the Pre-Election update (PREFU) on October 6 last year. The growth outlook is now even worse than the supposed downside scenario presented in December, in which trading partner growth of 0.4% and 1.6% was forecast for the 2009 and 2010 calendar years. The most recent predictions from Consensus Economics put trading partner growth at a shocking -2.3% for 2009 and +2.0% for 2010. Falling commodity prices and weaker demand pressure will also see the Treasury lower their inflation and terms of trade forecasts relative to the downside scenario in December, resulting in much weaker growth in the nominal economy. The Finance Minister has indicated that nominal GDP is expected to fall short of the PREFU forecasts by a total of $50bn over the three years to 2012, which implies a shortfall of tax revenues in the order of $20bn.

This means that some tough decisions need to be made. The Government has already indicated that the tax cuts earmarked for 2010 and 2011 and the annual contributions to the Super Fund over the next few years will more than likely be postponed. The Government is also going through a rigorous process of assessing and reprioritising all spending decisions, and recent commentary suggests that some significant savings have been and will continue to be made.

But, as we see it, the most effective way the Government can begin to get on top of expenses is by reducing the spending allowances for future Budgets, currently set at $1.75bn per year for the 2009 Budget, increasing by 2% per year in each of the next three Budgets.

Cumulatively, that totals $17.87bn in new spending over the next four years. We expect the Government to halve those spending allowances, with the bulk of the remaining allowance being committed to health and education initiatives. That, in conjunction with the other savings-related initiatives discussed above, should be enough to keep spending and thus future deficits in check.

On our estimates, tighter spending controls combined with the various saving initiatives should be enough to ensure that gross debt remains below the 45% of GDP projected in December, under the assumption of no changes to policy. Even so, our forecasts suggest gross debt will still reach around 36% of GDP by 2013. Bond issuance is set to rise substantially in coming years, rising from $5.5bn this fiscal year to around $10bn next year and peaking at $12bn in 2011.

While we expect fiscal policy to remain in expansionary territory over the next two years, the Government's commitment to fiscal discipline will likely mean less stimulus than estimated in December (around 5% of GDP over 2009 and 2010). That will put more of the burden back onto monetary policy, reinforcing the RBNZ's ‘lower for longer' stance.

The RBNZ's inflation expectations survey (Tues) should also support their current stance. Expectations for inflation two years ahead have fallen sharply in recent quarters, and a further drop is likely this time. Interest rates are at historically low levels, but the risk of creating a new inflationary spiral is so distant that the RBNZ can afford to commit to low rates for a while longer.

This aside, the remaining data next week should be more promising. Merchandise trade (Tues) is expected to record another healthy surplus, with robust exports and soft import demand, particularly for cars. Business confidence (Wed) may build on its March gains, as low interest rates, rising home sales, and a tick up in Fonterra's payout forecast provide reasons for hope in some sectors. Residential building consents (Fri) should eventually respond to the rise in housing demand and net inward migration, although access to credit may be a constraining factor for apartment consents.

The recent improvement in housing activity, net migration, business confidence and global market sentiment, along with the smaller than expected rise in the unemployment rate, makes an OCR cut at the June 11 review a more marginal prospect. While further easing is still a strong possibility, the RBNZ may feel more comfortable about holding back for now, so that it can respond to global economic conditions as necessary later in the year.

Round-up of local data released last week

Date Release Previous Latest
Mon 18 May Q1 producer prices - output 1.4% -1.4%
Q1 producer prices - input -2.2% -2.5%
Thu 21 May Apr external migration ann. 7,482 9,176
Apr credit card transactions -2.8% 2.3%

Data Previews

Aus Mar Westpac-MI Leading Index

May 27, Last: -5.1% annualised

  • The annualised growth rate of the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months into the future, was -5.1% in February well below its long term trend of 2.9%.
  • Most monthly components showed an improvement in March. In particular, equity markets surged strongly with the ASX recording its strongest monthly gain (+7.1%) since June 2000. Dwelling approvals also posted a solid 3.5% rise following on from an 8% jump in Feb. However against this, US industrial production again fell sharply by 1.7% in March and money supply growth slowed to 0.2% from 1.4% in Feb.
  • The Coincident Index - a companion measure tracking current activity - has shown a milder slowdown to date (annualised growth was still positive at 0.7% in Feb) and is likely to get a boost from upticks in retail and labour market data in March.

Aus Q1 construction work done

May 27, Last: 1.7%, WBC f/c: -3.5%

Mkt f/c: -3.0%, Range: -6.1% to 2.0%

  • A downturn in the construction sector most likely began at the start of 2009. We're forecasting activity to contract by 3.5%.
  • Private sector building activity, which levelled out over the second half of 2008, in particular will show a step down. Approvals, for both residential and non-residential building retreated in late 2008 and the pipeline of work outstanding began to decline in the December quarter.
  • Private infrastructure work and public construction are expected to provide a partial offset. While we do expect infrastructure activity to weaken in response to the global recession, momentum in the mining sector and the record pipeline of work outstanding points to a delayed reaction.


May 28, Last: 6.0%, WBC f/c: -5.0%

Mkt f/c: -5.0%, Range: -9.7% to 2.0%

  • We're forecasting the CAPEX survey to report a 5.0% fall in business investment spending in Q1. We expect further declines in the quarters ahead.
  • Recall that the CAPEX survey revealed surprising strength last period. Momentum in the mining sector was understandable, but a rebound in manufacturing and the sizeable rise in service sector investment could only be interpreted - in our view - as a late cycle burst.
  • As for Q1, we expect spending on equipment and activity in the building & structures segment to weaken. Lending support to this view, capital imports fell in nominal terms by around 4.7% - which points to a larger fall in real terms given a rise in prices with the dollar at lower levels.

Aus 2009/10 CAPEX

May 28, Last: AUD79.9bn

  • The CAPEX survey will also provide a 2nd read on firms investment plans for the 2009/10 financial year
  • The 1st read three months ago of $79.9bn was relatively upbeat. It implies a 6% rise in nominal spending and follows a likely 16% increase in 2008/09.
  • As always, we caution that the 1st read of the CAPEX survey is often very unreliable - after all it is taken prior to the outcome from the year prior.
  • The private sector surveys of the business sector, which are more timely, are pointing to a substantial decline in business investment over the year ahead. It is understandable that firms will react to the global and domestic recession by reducing spending, hiring and borrowing.

Aus Apr private credit

May 29, Last: 0.1%, WBC f/c: 0.2%

Mkt f/c: 0.2%, Range: -0.1% to 0.5%

  • Private credit growth has slowed appreciably as the economy contracts. We're forecasting a rise of just 0.2% in April. That follows an increase of only 0.1% in March and a flat outcome in February.
  • On the plus side, housing credit growth is improving - gradually - as new lending (housing finance) recovers in response to very low interest rates and the boost to the First Home Owners' Grant. The improvement is set to extend over coming months and has the potential to lift total credit growth in April - a touch.
  • However, business is cutting back on borrowing in this environment. Credit to the sector - which can be volatile from month to month - contracted by 0.6% in March and declined by 0.5% in February. A further decline in April is likely.

NZ Apr merchandise trade NZDm

May 26, Last: +324, WBC f/c: +450

  • The merchandise trade balance has been moving steadily into positive territory. Expenditure on imports has plunged as demand for consumer durables, especially cars, has dried up. By contrast, export receipts have held up as the decline in the NZ dollar has outweighed the impact of lower commodity prices, and local production conditions have been solid.
  • We predict the highest April surplus on record. Consumer imports will remain extremely weak following the miserable retail sales, and investment imports will be rock bottom in this environment. Car imports have lifted off their base, but remain weak.
  • Exports should remain fairly robust given good growing conditions, average commodity prices, and the low exchange rate. The new Maari oil field began exporting in April, boosting crude oil exports by $45m - $90m.

NZ Q2 RBNZ survey of inflation expectations

May 26, 2yr ahead - Last: 2.3%, WBC f/c: 2.1%

  • 2-year ahead inflation expectations spiked up to 3% in September 2008, but have since plunged to 2.3% in March 2009.
  • Our models predict that 2-year ahead inflation expectations will fall to 2.2% this quarter. However, we suspect there is downside risk to the model forecast, hence our 2.1% prediction. We participate in the survey, and our own response will be 1.1%.
  • This inflation expectations survey could be a last-minute swing factor between a cut or on-hold decision ahead of the RBNZ's June 11 Monetary Policy Statement, but only in the event of a large surprise relative to expectations.

NZ May NBNZ business confidence

May 27, Last: -14.5%

  • Business confidence recorded a sharp, broad-based gain in April, after plumbing record lows on many measures through the first quarter of this year.
  • This survey can be volatile, and the rise in April was probably out of proportion with the few 'green shoots' that have emerged in the domestic economy. However, history suggests that the initial pickup in confidence could feed on itself in the following months. In particular, the agriculture and construction sectors should be buoyed by the 10c increase in Fonterra's payout forecast and the continued surge in house sales respectively.
  • A further improvement in confidence would suggest upside risk to our Q1 GDP forecast of -1.0%, though this is well south of the RBNZ's March forecast of -0.2%.

NZ Budget 2009

May 28, Last: $5.637bn, WBC f/c: -$1.5bn

  • The Government's 2009 Budget will be one of the most important in years. Faced with a dramatic rise in crown debt and a possible credit rating downgrade, the Budget will be more about demonstrating fiscal discipline than providing additional relief to households and businesses.
  • We expect the Government to postpone the 2010 and 2011 tax cuts, to defer payments to the superannuation scheme, and to halve the operating spending allowances for future Budgets. Together those initiatives should help keep the deficits and core crown debt in check.
  • Our estimates suggest a bond programme of $10bn will be required in 2010 (compared with a forecast of $7.7bn at the December update), but that thereafter it will be either broadly in line with or lower than predicted back in December.

NZ Apr building consents s.a.

May 29, Last: -4.6%, WBC f/c: 9.0%

  • The number of dwelling consents issued per month has hit the lowest levels seen since the mid-1960s. With around 1,000 consents being issued per month, the number of new homes being built is now below that required to keep pace with population growth, especially with net migration rising sharply.
  • The shortage of supply, combined with the marked increase in existing home sales in recent months and much lower interest rates, suggests a pick-up in building consents is imminent. The key risk remains access to credit, with anecdotal evidence suggesting property developers are still facing difficulties.
  • The trend in non-residential consents has been tracking lower since November last year. With the signal from recent business confidence surveys that firms are curtailing their investment plans, this trend is likely to continue for a while yet.

US regional factory surveys for May

May 26, Richmond Fed: Last: -9, WBC f/c: -5

May 26, Dallas Fed: Last: -32, WBC f/c: -20

May 29, Chicago PMI: Last: 40.1, WBC f/c: 43.5

May 29, Milwaukee NAPM: Last: 39, WBC f/c: 43

  • These surveys have been a big part of the cliched "green shoots of recovery" story that emerged in March, though the reality is that despite some steeply higher April readings, all were still at levels consistent with declining output, albeit at a slower pace than in Q1. Consistent with this, April industrial production fell 0.5%, compared to an average monthly fall of 1.6% in Q1.
  • Thus far for May we have seen the New York Fed which rose from -15 to -5 and the Philly Fed which rose a more modest 1.8 pts to -22.6 . Consistent with these outcomes, we expect further improvement in the swathe of regional surveys due over the coming week, though we are not yet confident enough to forecast outcomes consistent with positive IP growth.

US Apr existing & new home sales

May 27, Existing home sales: Last: -3.0%, WBC f/c: 2.0%

May 28, New home sales: Last: -0.6%, WBC f/c: -1.0%

  • Existing home sales fell 3% in March but have essentially been see-sawing about a flat trend since November last year. Sales do seem to have found some sort of base, most likely being supported by the sale of foreclosed properties at distressed prices. In March, median prices were down 12.4%yr.
  • Pending sales posted back to back rises in Feb and Mar - the first such string of gains since 2007. That suggests April existing home sales should also post a rise, though that would merely be a continuation of the recent flat trend rather than an uptrend.
  • New home sales also appear to have found a base about 75% below their 2005 peak but with the market still grossly oversupplied and starts/permits falling there is little prospect of a near-term recovery in the new-build market.

US Apr durable goods orders to be about flat

May 28, Last: -0.8%, WBC f/c: flat

  • Durable orders posted a modest overall fall in March despite a second consecutive monthly gain in the core capital goods component and a slight rise in aircraft orders.
  • Business surveys for April mostly revealed a less weak orders picture, and industrial production of durables such as autos (+1.4%), machinery (-0.7%) and business equipment (-0.6%) was mixed. Boeing reported a 183% increase in orders but the numbers are so low (17 orders vs 6 in March) that they will barely impact the bottom line.
  • Putting all this together we expect April orders to be about flat, with a bias to the downside if core capital goods orders fail to post a third consecutive monthly gain.

Westpac Institutional Bank


All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.