FAIR USE NOTICE. This document contains copyrighted material whose use has not been specifically authorized by the copyright owner. The Managerial Economics course is making this material available as part of our mission to promote critical thinking about economic issues. We believe that this constitutes a `fair use' of the copyrighted material as provided for in section 107 of the US Copyright Law. If you wish to use this copyrighted material for purposes of your own that go beyond `fair use', you must obtain permission from the copyright owner.

Economists, statistics suggest slowdown

Decrease in Demand

Financial Revue

Saturday, July 31, 1999

By Alan Mitchell,
Economics Editor

Building approvals, housing and personal credit and new motor vehicle
registrations all grew strongly in June, but a survey of leading
economists, published today, shows that the economy is set to slow.

The growth in dwelling building approvals was an impressive 6.9 per
cent (seasonally adjusted) in the month, while new motor vehicle
registrations increased by 4.7 per cent. Housing finance grew 1.2 per
cent in the month, while personal finance grew by 1 per cent.

At the same time, the survey of economists, conducted by The Australian
Financial Review Weekend Edition, shows that economists expect
growth to slow from its present rate of around 4.3 per cent to 3.3 per
cent over the next 12 months.

However, the pictures painted of the economy by these contrasting sets
of data are not as different as they seem at first.

While the demand for housing and new cars is undoubtedly healthy, the
June increases are almost certainly an exaggeration of the underlying
trend.

In the case of dwelling building approvals, the increase was solely due to
the volatile units, flats and townhouses market. Approvals for private
sector houses fell by 1.5 per cent in seasonally adjusted terms.

While the value of residential building approvals has been accelerating,
the value of non-residential building approvals has been on a declining
trend for four months.

In the case of motor vehicles, the June increase in registrations just
offsets a fall the previous month. The trend in registrations is flat, albeit
at a relatively high level.

The continuing solid growth of housing and personal credit is seen by
economists as supporting continuing healthy growth of domestic
spending. However, business credit growth is relatively moderate (it
grew by 0.8 per cent in June and 8.5 per cent over the year), which
economists say is consistent with the more sombre outlook for
investment.

Economists say it is too early for the building industry to be affected by
the GST, but they predict that demand will be brought forward into the
first half of next year as people seek to avoid the increase in tax.

"Overall, the housing sector will be looking pretty `hot' by early next
year," Mr Harley Dale, an economist with Westpac, said on Friday.

"What is currently a solid upswing in the housing sector will in all
likelihood turn into a strong upswing on the back of the pre-GST boost
to activity."

The strength of this real sector of the economy by that time will be a
factor that is supportive of an RBA rate rise in the first quarter of 2000,
he predicted.