Australians build more homes, buy more cars

SYDNEY: Approvals to build new homes in Australia surged by the most in over seven years in April as the hard-hit apartment sector made a welcome comeback, cementing the outlook for a construction boom this year.

Other data out on Wednesday, May 5, showed sales of new vehicles ran red-hot in April while the country's service sector returned to growth as sales and employment revived.

Combined the upbeat figures underlined the case for further increases in interest rates later this year, though jitters in global financial markets could make the Reserve Bank of Australia (RBA) cautious in the near term.

"Today's lift in approvals has breathed new life into our housing construction story," said George Tharenou, and economist at UBS. "We continue to expect further rate hikes, though at a slower pace of 25 basis points per quarter."

The central bank lifted its key cash rate by 25 basis points to 4.5% on Tuesday, May 4, and cited surging export earnings, a buoyant housing market and higher inflation as some reasons for the move.

Investors assume the RBA will now pause in June and, probably, July given its six hikes in seven meetings had put it far ahead of any other central bank in withdrawing stimulus.

But the strength of the economy suggests a move to a restrictive monetary policy could start as soon as August.

Interbank futures imply around a 74% chance of a hike to 4.75% in August and are almost fully priced for a move by September.

Wednesday's trifecta of data certainly supported the central bank's upbeat outlook for the domestic economy.

Approvals to build new homes jumped 15.3% in March, blowing past forecasts of a 1% rise and the largest monthly gain since late 2002. Total approvals of 16,383 were the highest since October 2003 and up 52 percent on March last year.

Approvals in the volatile multi-unit sector soared 60% compared to February, suggesting credit was finally beginning to flow for big projects. The apartment building sector was one of the hardest hit by the global financial crisis. The burst of new supply should be welcomed by policymakers in that it could help take some steam out of home prices, which climbed to record highs in 1Q.

Yet in the near term the surge in construction will add to already strong economic growth and intensify competition for workers with the booming mining sector.

The energising impact of mining and construction was evident in a survey of 200 service sector firms out on Wednesday.

The Australian Industry Group (AiG)-Commonwealth Bank performance of services index (PSI) rose 3.4 points in April to 52.3, putting it back above the 50.0 level that marks the threshold between growth and contraction.

Sales and new orders both gained and there was a promising pick up in employment ahead of official jobs data next week.

"The employment reading is consistent with strong jobs growth in the broad economy, and signals that unemployment has peaked and is now headed lower," said CBA senior economist John Peters.

"This augurs well for future growth in consumer demand."

Consumers already seem happy enough to splash out on big-ticket items like cars. Industry figures for new vehicle sales on Wednesday showed 81,401 were sold in April, the second highest for that month and 27% higher than April last year.