February 2020 looks like being something of a ‘green shoots’ month when compared to the coming period. Some of the key data was pointing up after the softness of the second half of 2019. But how long is a month? However we describe the current situation and the ‘we-know-not-how-long’ lockdown, hibernation or whatever we call it, we know that the impact on our industries will be significant. Here, we take stock of some of the important February data, as something of a baseline on which to refer over the coming months.
Because so much of the domestic economy – and especially the wood products industries – are driven by demand for new housing, it is important to start with our most fundamental demand driver.
Housing approvals had flattened out
Australia’s dwelling approvals for the year-ended January 2020 totalled 171,359, down 16.7% on the prior year, but with some positive signs emerging, as the lines on the chart below show.
First, the green line shows that the decline in total approvals has begun to flatten out, declining in January 2020 just 0.7% on an annualised basis, compared with December 2019.
Second, that situation is even more clearly flattening out for free-standing houses, approvals of which, on the same basis, declined just 0.6%. Indeed, this flattening out rolls back about a quarter, suggesting that approvals for the year-ended February were likely to be fairly close to stable compared with January, and possibly even showing modest growth.
Fig. 4
To go straight to the dashboard and take a closer look at the data, click here.
It is worth examining the same data at a state-by-state level, as shown in the chart below, on a year-ended January basis.
The data in the table shows that the most populous states took the brunt of the housing downturn over the last year, with the point of interest perhaps being the similar declines for Queensland and New South Wales, which were significantly higher than the decline recorded for Victoria.
Fig. 5
To go straight to the dashboard and take a closer look at the data, click here.
|
YE Jan ’19 |
YE Jan ’20 |
% Change |
|
|
NSW |
63,374 |
49,485 |
-21.9% |
|
VIC |
65,927 |
57,657 |
-12.5% |
|
QLD |
38,630 |
30,166 |
-21.9% |
|
SA |
11,824 |
11,489 |
-2.8% |
|
WA |
15,761 |
14,788 |
-6.2% |
|
TAS |
3,087 |
3,093 |
0.2% |
|
NT |
704 |
551 |
-21.7% |
|
ACT |
7,298 |
5,342 |
-26.8% |
Housing finance on the rise
The value of housing finance loans lifted for the eighth successive month on a year-on-year basis in January 2020, with the total value up 23.3% compared with January 2019. Compared to the prior month, that was a 4.6% rise in total loan value, an especially solid result when we consider January is usually a pretty quiet month.
Fig. 6
To go straight to the dashboard and take a closer look at the data, click here.
The other feature of note in this data is that the total value of owner-occupier loans continues to rise. Year-ended January 2020 they accounted for 72.5% of total loan values, up from 70.4% a year earlier. Investors were on the other side of that equation, of course. Even better news for the long run in particular is that year-end January loans accounted for 20.2% of total loan values.
As the Guardian’s Greg Jericho wrote:
“Indeed if we look at the growth of housing finance, first-home buyers are the big movers. Home loans in December for non-first-home owner-occupiers were 10.1% above the year before, investor finance was just 3.2% above, and first-home buyer home loans were up 31.2%.”
That is a great start to the year for first home buyers and it might be matched by good data for February, but it seems too much of a stretch to think that new borrowers were strong in the market in March. This is an important piece of data to track as the current situation evolves.
Value of building work was down at base in December quarter
One observation we can make about cycles is they have their tops and their bottoms. It might well be that in terms of building work actually done, the December quarter of 2019 was the bottom of the cycle. We’ll never know, because the cycle has been unceremoniously tossed onto its rump, but the data certainly points that way.
The chart below shows the value of work done on new residential dwellings over the last decade, to the end of September. We can see the downturn, and at that point, it looked like it would still head South in the December quarter. All indications are that is what occurred.
When we consider the modest flattening in dwelling approvals in early 2020, we can reasonably anticipate the work done measure was about to increase because approvals quickly become commencements and work… gets done.
Fig. 7
To go straight to the dashboard and take a closer look at the data, click here.
The situation was no different for the value of Alterations & Additions for the year-ended December 2019. At $8.927 billion, the value of this work has not been lower since June 2015.
Fig. 8
To go straight to the dashboard and take a closer look at the data, click here.
Anecdotal evidence, including the information in this edition of Statistics Count, suggests that building activity was improving in early 2020. Though it takes some time to become available, in coming quarters, updates of these ‘work done’ measures will be important indicators of the impact of the current crisis.
Unemployment and wages growth
In February, Australia’s unemployment rate was in the right place – more or less – recorded at 5.1% or just over 699,000 Australians. We can see this in the chart below, which shows that unemployment has been hovering around or just above the 5% mark for around a year now.
Fig. 9
To go straight to the dashboard and take a closer look at the data, click here.
What a difference an unprecedented month can make.
We cannot easily assess (and we should not guess) at the magnitude of the ranks of the newly unemployed. Estimates were as varied as 200,000 to 1.5 million job losses in early April.
We know that Centrelink was overwhelmed, its systems crashed under incredible demand, its Robodebt system suspended and of course, that Job Seeker benefits were doubled and the new Job Keeper program a measure intended to keep as many people employed as possible while we ride out what we might come to consider Australia’s great hibernation.
The compounding tragedy is that we will not know until it is over, how long the hibernation will be in effect, and therefore how long it takes people to return to work, or even what work that will be. For many, work may never be the same.
While the data was strong on employment, it was pretty ordinary on wages growth, despite some relatively bold forecasts in Budgets and Mid-Year updates.
Writing in The Guardian in late February, Greg Jericho provided the following chart that shows clearly how wages growth has declined and failed to lift itself from the floor in recent times.
As Jericho wrote:
“…from 1997 to 2012, private sector wages on average rose by 0.9% each quarter, but since the start of 2013, not once have they risen by that amount. What was average is now impossible.”
Budget projections of wages growth have proved woefully optimistic on this front, for some years now, as this chart from Jericho shows.
If nothing else, we have to look to projections of wages growth with a very wary eye. It has been more than half a decade since they were right, even for the 6 months immediately after each Budget’s forecast.
This is important right now, because it is part of the story that has seen households rein in their expenditure over recent years, and that in many cases, has families living more-or-less from hand to mouth. Low wages growth, high indebtedness, low household savings, all of a family’s wealth tied up in illiquid assets like property – and now the sudden loss of jobs, is a potent mix of agony for many households in Australia.
When the recovery comes, we have to get the nation back to work, but it is hard to see where the much needed growth in wages will come from. This is an important measure to keep an eye on as at a macro level this is a key pathway to reducing the level of household debt and encouraging household expenditure.
