Retail sales & employment in focus
The start of a new month ushers in a barrage of fresh economic data, with something of interest for investors virtually each day in the coming week. However of particular focus will be the retail trade figures (Monday) and employment (Thursday).
Retail trade was particularly disappointing in May, in fact mildly concerning. Sales fell for the second consecutive month, but of particular focus was the slump in discretionary (non-food) spending.
Discretionary spending fell for the third consecutive month, down by 0.9 per cent -- the biggest monthly decline in 14 months. The weakness in activity was driven by the negative perceptions of the federal budget.
But in that context, the outlook is certainly brighter. The federal budget no longer takes centre stage and confidence levels have rebounded in recent weeks, even surpassing the pre-budget period, and now holding at the best levels in seven months.
Apart from the retail trade figures, ANZ job advertisements are also expected on Monday. Job advertisements have been volatile over the past couple of months. However in trend terms advertisements are now showing a healthy lift, and should continue to strengthen in line with the lift in economic activity.
On Tuesday the Reserve Bank Board meets with most interest in its views on the latest inflation result. The Reserve Bank has made it clear that interest rate stability is a key goal at present.
Also on Tuesday the TD Inflation Gauge and international trade data for June are released. The trade data is likely to show a monthly deficit of $2.3 billion.
On Thursday, the July employment figures are due. There is no doubt that there has been a credible lift in employment over 2014 with almost 90,000 jobs being added in the first six months of the year, marking the best start to a calendar year in six years. At face value, there does seem to be a shift from part time to full-time jobs, which makes sense given that over the past year, business profitability has improved, and now employers are seemingly adding more full time staff.
However, employment growth is not enough to offset the lift in the work force. Given the better economic conditions more people are looking for work and as a result the unemployment rate has lifted in recent months. CommSec expects employment rose by 17,000 in July with the unemployment rate easing to 5.9 per cent.
Investors that are focused on companies and industries dependent on home purchase and construction will be interested in the home loan data on Friday. In May, home loans were largely flat in number, although the value of loans fell by 0.8 cent.
After the huge run-up in activity there have been signs of a consolidation. Recently, new home loans have eased from 4-year highs and building approvals have been more volatile. We will be keeping a close eye on the number of construction loans -- a precursor to further housing supply.
There is a close correlation between home construction loans, building approvals and housing work -- the latter driving the fortunes of residential developers and building material suppliers. In terms of owner-occupier loans we tip a 1 per cent fall in June with the value of all loans up by 1 per cent.
Also on Friday, the Reserve Bank releases its quarterly Statement on Monetary Policy. Little change in economic growth and inflation forecasts is expected, confirming that interest rates are on hold until at least late in the year.
China takes the spotlight away from the US
It doesn’t happen regularly, but a quiet week is in prospect on the economic front in the US. The highlight is probably the Institute of Supply Management (ISM) gauge on services activity. Of more interest, Chinese trade and inflation data are due late in the week.
And it is that ISM services index that kicks off the week in the US on Tuesday with economists tipping a lift from 56.0 to 56.1 in July. Any reading over 50 signifies an expansion of the services sector.
On Tuesday, data on international trade (exports and imports) is released together with the weekly figures on chain store sales – a guide to consumer spending. The trade deficit may have narrowed from US$44.4bn to US$43.5bn in June.
On Wednesday the weekly data on housing finance is issued together with figures on factory orders.
On Thursday the regular weekly data on claims for unemployment insurance is issued together with consumer credit (personal finance). While on Friday the US data of note are the figures on wholesale sales and inventories and the June quarter figures on productivity and labour costs. So, as noted above, hardly an inspiring week of US economic data for investors.
In China, the focus is on trade data (exports and imports) on Friday while both the producer and consumer prices indexes are issued on Saturday. The June trade surplus was US$31.6bn and another healthy surplus is expected in July.
And while the extent of business deflation may have eased in July (producer prices fell by 1.1 per cent over year to June), the rate of consumer price inflation may have also eased to 2.2 per cent in July. If inflation remains under control, Chinese authorities may have more scope to stimulate the economy if needed.
Australian profit-reporting season
The Australian profit-reporting season cranks up a notch over the coming week.
On Tuesday, earnings are expected from Transurban Group, with Cochlear expected to report on Wednesday.
On Thursday, earnings are expected from Tabcorp, Rio Tinto, Flexigroup and Henderson Group.
And on Friday, News Corporation and REA Group are expected to release earnings results.
Savanth Sebastian is an economist with CommSec.