Drop In Building Approvals Won’t Spark Rate Cut

Construction, interest rates and the great Australian dream of the quarter acre block and the big backyard are all very closely related, perhaps more so than ever before. Every time the latest building report comes out there seem to be calls for the Reserve Bank to cut interest rates.

As a Melbourne labour hire firm we have a vested interest in the health of the Australian economy and we follow construction news closely.

This week a report came out showing a drop in building approvals in Australia. Predictably, economists were called to weigh in on the news with the consensus being that the news would not be enough to necessitate a rate cut.

While official figures showed that approvals fell by 1.8% in October, the drop was not considered enough to warrant a rate cut.

“This data won’t change the RBA’s perspective here,” he said.

“We think they’re marginally on the weaker side but you need several more months of substantially weaker data to change the RBA’s mind.”

In other words, that’s a resounding “no” to more interest rate cuts. It is no surprise really, when you consider that September saw a 16.9% increase in approvals.

Local councils around the country approved the construction of 16,491 new houses, townhouses, and apartments in October. The total figure for September was 16, 791—a three-and-a-half year high.

Moreover, economists had forecast a fall of 4.5% in approvals for October, so the 1.8% drop announced this week was better than many expected. And when you consider the year to date, approvals are up 23%.

But for every action there is an equal and opposite reaction. In the case of Australia’s comparatively strong building data, the opposite reaction has been a weakening of the Australian bond market.

The release of positive building data this week coincided with a sell-off in safe-haven assets, Australian government bonds among them.

“If you want to put a finger on where the market traded soft it’s more when the Australian building approvals data came out at 1130 (AEDT),” said UBS interest rate strategist Matthew Johnson.

Despite more economic data expected over the coming week, Johnson echoed the feelings of many financial analysts when he predicted that the US employment figures due out on Friday would be more influential on the local market than local economic data.

From where we stand, the Melbourne labour hire market is looking positive with a host of building and major infrastructure projects currently underway in and around the city.