Data reveals signs of housing recession

18 Jul 2012, 4:57 pm   -   Source: AAP

New data shows the value of building work done in the March quarter shrank to its lowest level in two and a half years.

The central bank may be content to sit on the sidelines and not rush in with any further interest rate cuts for now but newly released housing data is a stark reminder that not all sections of the economy are firing.

Building activity data released on Wednesday by the Australian Bureau of Statistics (ABS) showed the value of total work done fell by 2.8 per cent to a seasonally adjusted $18.7 billion in the March quarter, the smallest amount since the September quarter of 2009.

Housing Industry Association senior economist Andrew Harvey said new residential building work - down 1.2 per cent in the quarter - had now fallen for four consecutive quarters, while renovations were down for three quarters in a row, after dropping 5.5 per cent.

"Combined with leading indicators which show further weakness ahead, there is no doubt the Australian home building industry is in recession," Mr Harvey said.

The results come the day after the minutes from the Reserve Bank of Australia's (RBA) July board meeting indicated the central bank is in no haste to ease monetary policy further.

Other data pointed to moderate economic expansion in the months ahead, with the annualised growth rate of Westpac-Melbourne Institute leading index at 1.6 per cent in May.

The index, which indicates the likely pace of economic activity three to nine months into the future, was well below its long-term trend of 2.6 per cent.

However, Westpac chief economist Bill Evans said this was the fastest monthly pace since September 2011, pointing to a moderately improving growth tempo in the second half of 2012 and into 2013.

Mr Evans expects economic growth will be an annualised rate of around three per cent in the second half of 2012, rising to around 3.5 per cent in 2013.

But this assumes further interest rate cuts in the second half of 2012.

He said it was clear the RBA board was now in a "wait-and-see" mode.

"Despite our own scepticism, the board was clearly impressed by the 1.3 per cent surge in GDP growth in the March quarter," Mr Evans said in reference to the national accounts that were released in early June.

RBC Capital Markets strategist Michael Turner expects a further 75 basis points of cash rate cuts, but says the timing is difficult to predict.

The cuts will hinge on a deterioration of the labour market and subdued external demand.

Mr Turner said the 440 job losses announced by Ford Australia on Tuesday added to a long list of manufacturing job losses over the past 12 months, although ABS data shows manufacturing jobs grew by some 6000 in the first half of 2012.

"Nonetheless ... the unemployment rate is likely to grind higher," Mr Turner said.

More productive sectors would be unable to soak up the excess supply of labour created by job cuts in manufacturing, construction, and retail, he said.

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