Overview

• Meeting with clients in WA last week confirmed an improvement in business conditions in mining and the overall WA economy. Mining services firms – and firms supplying mining services such as 4WDs – in particular are benefiting, though as yet there are not new significant big-ticket mining projects to drive a step-up in white collar labour and commercial office demand.
• In today’s Weekly we present a number of charts on developments in the WA economy. We note that with the improvement in mining, it’s the first time in a decade that both mining and non-mining have been experiencing healthy business conditions simultaneously. That said, overall the lift in WA is proceeding only moderately, reflecting spare capacity in housing and commercial office space. The improvement in QLD’s economic statistics has been more broad-based to date, and is reflected in stronger levels of business conditions and job advertising.
• WA job advertising and business conditions are recovering from low levels. And interestingly, consumer confidence has been strengthening recently – and in a number of months has exceeded the Australian aggregate. This is worth watching, given the significant drag on national retail statistics from WA.
• Also worth watching is a spate of developing renewed interest in lifting Australian LNG capacity, given a faster return to balance between world demand and supply. This has in part been due to strong Chinese demand for Australian LNG.
• For now at least, we conclude that while the WA economy is clearly recovering, especially for resources, it’s still a relatively moderate-paced recovery.
• In Australia, this week, it’s relatively quiet, with just Credit data on Wednesday and Capex data on Thursday. Next week is more important, with the March RBA Board Meeting, the remaining GDP partials and Q4 GDP. At this stage, NAB is expecting a 0.7% q/q GDP outcome.
• While the RBA is very focused on spare capacity in the labour market and the implications for wages and therefore inflation, the course of the capex recovery will be important in using up some of that spare labour capacity. The key focuses for the markets will be the degree to which non-mining capex is continuing to lift and – we suggest – whether mining capex is bottoming at a higher-than-expected level, which some indicators are pointing to. On both fronts, the risks seem to be developing more favourably.
• Offshore, new Fed Chair Jerome Powell testifies for the first time before Congress. Markets will be looking for any further indication that the Fed will likely be raising rates more often this year, though some Fed Governors have already been suggesting a base case of three to four US rate rises for 2018. Key US data include the Manufacturing ISM and PCE deflator measure of inflation. Measures of inflationary pressure have also been strengthening in recent times in the ISM, which has also been behind part of the US bond sell off.

For more information, please refer to the attached report:

• Australian Markets Weekly: 23 February 2018 (PDF, 357kb)