Building Approvals beat expectations, but no reason to be too excited

Ahead of tomorrow’s release of the GDP data for the third quarter today’s better than expected Building Approvals for Oct might be interpreted as looking positive for growth. But we need to temper our excitement about what the (highly volatile) headline numbers are telling us.

Firstly, to the numbers themselves. Seasonally adjusted approvals rose by 3.9% in October for the month (against market expectations of a decline around 2.4%) with the previous month’s data revised very slightly higher. The year on year increase now stands at 12.3%. As always, we need to consider the impact of very “lumpy” units approvals in these numbers; doing so shows that house approvals were actually down 2.2% m/m and are now 2.3% lower than a year ago. Unit approvals, by comparison, were up 10.1% m/m and up 30.2% from the same time last year. We are witnessing a clear and dramatic shift towards units across the nation. The ABS Trend series helps to smooth out some of this monthly volatility and here we see approvals down 0.6% m/m (with Sept revised slightly better) and up just 5.1% for the year. This is the slowest pace of Trend approvals growth since July 2012. The Trend data also confirms the shift from houses to units with annual house approvals down 0.4% while units are up 11.8%.

In Queensland (after the crazy data from last month…see here for details) it is no surprise to see approvals fall sharply on the back of a dramatic reversal from the unit approvals data from last month. Total approvals (seasonally adjusted) fell 28.7% m/m for a 14.2% increase on the year. Unit approvals fell by 42.7% over the month but remain up 30.8% from a year ago. House approvals fell by 6.6% for the month and are up just 1.7% over the course of the year. If we consider the Trend data we see total approvals down just 0.1% for the month (the 7th consecutive month of declines) and up 10.1% for the year. As is the case nationally, the Trend data highlights the house-to-unit shift going on; house approvals rose just 4.7% over the year while unit approvals were up 16.8%.

We will get the regional approvals data next Tues at which time we shall update our Conus Trend data for the Cairns, Townsville and Cassowary Coast Local Government Areas.

In other data released today by the ABS a very strong set of Balance of Payments numbers suggest that Net Exports will add about 1.5% to GDP growth in the third quarter (released tomorrow). This suggests much stronger GDP numbers for Q3 than the market had been expecting and will in all likelihood remove any further talk of more RBA rate moves. There is no chance of a move from the Bank at today’s meeting.

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