Key insights from the week that was.
In Australia, the week kicked off with a gloomy update on the housing market. Cotality’s nationwide home value index dropped another 0.7% in July, following declines of 0.5% and 0.7% in May and June respectively, leaving prices 1.6% below their March peak. The scale of the correction is broadening across the capitals, with momentum in Brisbane and Adelaide abruptly shifting from gains to losses, while prices in Sydney and Melbourne fall more than 1% per month. The combination of restrictive monetary policy, weak homebuyer sentiment following the Budget and general economic uncertainty makes for a challenging backdrop.
Shifting focus to the consumer, recent readings on household spending point to a degree of resilience. Nominal household spending rounded out the quarter with a 0.8% increase in June, taking the Q2 gain to 1.3%. Just under half of that increase was driven by higher prices (0.6%), with higher volumes (0.7%) accounting for the remainder of the gain – implying slightly higher inflation and slightly lower real spending versus Q1. Gains across household contents, recreation & culture and hospitality point to the potential for improved discretionary spending, however.
Our Q2 Westpac-DataX Consumer Panel – a comprehensive update on income, spending and saving flows across the country – adds useful context. It shows that income growth has trailed spending growth over the past year, prompting households to draw down on savings. However, this drawdown had a relatively robust starting point given the median consumer had rebuilt savings buffers to around 2022 levels prior to the post-pandemic tightening cycle. While conditions remain uneven across the mortgage belt, the aggregate drawdown this year has been relatively modest, suggesting households retain a degree of financial resilience.
Before moving offshore, a final note on trade. June’s goods trade data surprised to the upside, recording a surplus of $1.9bn following May’s deficit of $2.4bn. Gold exports was the primary driver of monthly volatility, although a solid performance from iron ore also contributed to export earnings. For Q2 as a whole, goods trade appears set to detract around ½ppt from GDP growth, most notably due to large increases in fuel and EV imports.
Over in the US, the manufacturing PMI rose 2.3pts to 55.6, its highest level since May 2022, as production jumped 6.3pts to 58.5 and new orders remained firmly in expansionary territory at 56.7. Employment also returned to expansion for the first time in nearly three years. For the services sector, the headline PMI was broadly unchanged at 54.1, but the detail was mixed. New orders lifted 2.1pts to 57.2 and business activity 3.7pts. However, the employment index fell 3.8pts to 47.4, an outright contractionary read.
While a month behind the ISMs, the latest JOLTS job report points to less demand for labour across a number of key services sub-sectors including healthcare (-147k to 1,347k), education (-133k to 1,475k), professional & business services (-71k to 1,304k), and accommodation & food services (-68k to 684k). The only meaningful offset came from transportation & warehousing, which rose 119k to 1,369k reflecting a seasonal pattern. That said, the current job opening rate for the economy overall is consistent with labour demand and supply remaining broadly in balance as opposed to outright declines. Tonight sees the eagerly awaited release of the July employment report.
In China, the RatingDog manufacturing PMI fell 0.8pts to 50.9 in July, its weakest reading in four months. The headline decline was concentrated in production and new orders. Consistent with a soft domestic economy, price pressures eased further, input price inflation slowing to a six-month low and output price growth remaining broadly flat. The services PMI experienced a sharper fall to 50.4 in July, its lowest reading since September 2024. The July decline was primarily driven by weaker growth in domestic new orders. Employment continued to expand, albeit at a slower pace, while business sentiment fell to its lowest level since early 2020. Clearly there is need for pro-active stimulus in scale through the second half of the year.
Finally, in the Middle East, a deal between Iran and Oman over transit through the Strait of Hormuz is reportedly in the final stages of drafting. If implemented, it will allow safe passage for commercial ships. Iran has said, however, that US and Israeli-linked vessels will not be allowed to transit while the US’ blockade remains in effect. Whether this stance causes an issue for the implementation of this deal and/or any further progress towards a lasting peace is a question for another day. Market participants continue to take a glass half full view, with Brent oil having traded near USD80 most of this week.
