Monday, 13 October 2008

Australian Lending Finance Continues to Contract

Credit contraction continued apace in August as data from the abs showed lending finance across all major catergories fell in August. Housing finance fell -2.1% in August, Commercial finance -7.9% and personal finance -5.2%. From their peaks Housing finance is down -26%, personal finance -18% and Commercial finance a whopping -41%.

The decline in Commercial finance is even more staggering considering that it only peaked in January 08 whereas personal and housing finance peaked in Jun 07. Whilst it has been a precipitous drop, commercial finance has only reverted to levels last seen in October 2005.

However given what has happened in credit markets in September and the first half of October, it is safe to say that lending finance will continue to contract. This is reinforced by the latest performance of contruction index released last week by Aig which showed a marked contraction in the construction sector.

This is the 7th monthly contraction in constructiuon and the weakest reading in the 3 year history of the series. Drilling down by component, activity, employment and new orders all hit new lows.

Also a harbinger of future employment, the ANZ job ad series released today showed year over year declines for total ads for the first time in 6 years.

Taken altogether, recent data points to a sharply slower Australian economy, slowing more rapidly than the RBA would like to see I suspect. Have stock prices fully discounted a recession in Australia? I don't think so, particularly with respect to Australain retailers which are yet to feel the knock on effect to sales of higher unemployment and a contraction in credit.