Pieces of the economic growth jigsaw puzzle
On Wednesday September 3, the June quarter Gross Domestic Product, or economic growth estimates of the ‘National Accounts’ will be published. On that day, generally just one figure is important -- how fast did the economy grow over the three months to June. But that one number is the by-product of a range of variables including household consumption, business investment, inventories and exports. In other words, there are various pieces of the puzzle that have to be put together.
So far, the only real piece of the puzzle to hand is household consumption -- data on real retail spending for the June quarter has been published as has data on motor vehicle sales. Real retail spending eased 0.2 per cent in the June quarter while car sales rose by 0.9 per cent. So, it appears that household consumption didn’t add too much to broader economic growth in the quarter.
In the coming week, two economic data releases will include pieces of the economic growth puzzle. On Wednesday, data on construction work done is released and on Thursday the June quarter business investment figures (private capital expenditure) are issued.
In terms of the construction data, the residential work done figures tend to ‘plug in’ to the residential investment component of the economic growth calculation. And the investment survey data on Thursday tends to ‘plug in’ to private business investment in the national accounts.
Overall we expect that business investment fell by 2 per cent in the June quarter after falling by 4.2 per cent in the March quarter, confirming a generally soft reading of economic growth in the quarter.
But as is always the case with the investment survey, the expectations on future investment will be just as important as the change in spending in the June quarter.
Other indicators to watch over the coming week include the weekly ANZ-Roy Morgan Consumer Confidence Rating on Tuesday, new home sales on Thursday and private sector credit (or loans outstanding) for July, to be released on Friday.
Credit grew by an out-sized 0.7 per cent in June and we tip slightly softer growth of 0.5 per cent in July.
Busy week for economic data in the US
In the coming week, a raft of indicators, covering a range of sectors, will be issued in the US. In contrast, it is a quiet week for new economic data in China
In the US, the week kicks off on Monday with the release of the National Activity Index together with the “flash” reading of activity in the services sector from Markit, and July data on new home sales. Economists estimate that a solid 4.7 per cent lift in new home sales occurred in July.
On Tuesday data on durable goods orders (measure of business investment) is released together with the CaseShiller and FHFA measures of home prices, the consumer confidence index and influential Richmond Federal Reserve survey of activity. The usual weekly data on chain store sales is also issued on Tuesday.
Economists expect that durable goods orders rose by 2.1 per cent in July while consumer confidence is seen broadly steady in August and home prices may have eased 0.1 per cent in June.
On Wednesday the weekly data on home loans is released.
On Thursday the second estimate (preliminary) of economic growth (GDP) for the June quarter is released. The economy bounced back nicely in the June quarter after the significant snow-storms early in 2014. Economists only tip a modest downward revision in the annualised growth pace in the June quarter from 4 per cent to around 3.8 per cent.
Also on Thursday data on pending home sales is released together with weekly data on claims for unemployment insurance and the Kansas City Federal Reserve survey.
And on Friday, figures on personal income and spending are released together with consumer sentiment and the influential Chicago purchasing managers index. Economists expect that personal incomes grew at a healthy 0.3 per cent rate in July with spending up 0.2 per cent in the month.
Australian profit-reporting season
The Australian profit-reporting season moves into the home straight in the coming week. On Monday, earnings are expected from Bluescope Steel, Beach Energy, M2 Group, Spark Infrastructure, UGL Limited, Western Areas and Caltex.
On Tuesday, earnings include those from AWE Limited, Southern Cross Electrical, Blackmores Limited and Virtus Health.
On Wednesday, amongst those scheduled to issue their profit results are WorleyParsons, BC Iron, Charter Hall, Drillsearch Energy, Lend Lease, Prime Media, Roc Oil, Boral, Flight Centre and Seven West Media.
On Thursday, earnings are expected from Ramsay Health Care, Adelaide Brighton, Nine Entertainment, Perpetual, Qantas and Atlas Iron.
And on Friday earnings include those from Harvey Norman, Horizon Oil, Perseus Mining, Sandfire Resources, Woolworths and Virgin Australia.
The Reserve Bank Governor was grilled about the Aussie dollar in recent testimony to the House of Representatives Economics Committee. When asked to identify reasons why the Aussie dollar remains high, Governor Stevens nominated the principal reason as being the fact that global capital wants to invest in Australia in preference to other parts of the globe. Also he noted that Australia wasn’t alone in bemoaning a high currency in relation to the US dollar – with Canada and New Zealand having similar concerns.
Craig James is chief economist of CommSec.