Auto warriors:the death of a dinosaur

Australians are buying far fewer big four wheel drive vehicles than they were just a year ago.

Filling their tanks, at a typical cost of $120 a week, is proving to be a big disincentive.

So, of course, is a higher level of environomental awareness.

A sharp economic downturn, over the first half of this year, also contributed to the downturn.
The fall shows up clearly in figures just released by the Australian Statistician.

The bureau reports that Australians bought only 14,842 sports utility vehicles in July this year.

That is down from 15,396 in July last year and a peak of 18,966 in June 2007.

The bureau classifies big four wheel drives as sports utility vehicles.

But that classification also includes small four wheel drives and a small number of other specialist vehicles as well.

On seasonally adjusted figures, a total of 85,411 new vehicles were sold in Australia in July.

That represented a 3.4 per cent fall, from the level of the previous month.

It also represents a 4.1 per cent drop from the level of new vehicle sales in July last year.

Car dealers in Queensland were hit particularly hard.

New car sales there plunged by 9.6 per cent over the year, on seasonally adjusted figures.

On the same basis, new car sales fell by 6.7 per cent over the year in New South Wales.

But car sales rose 1.4 per cent in Victoria over that time.

Car sales also  rose, by 4.7 per cent in South Australia over the year, but fell by 3.8 per cent in WA.

Swan NABs victory in the battle of the banks

Three banks, which wanted to keep interest rates high, have lost their battle with the Federal government.

The Commonwealth, ANZ and Westpac banks had all signalled that they might not drop their home loan interest rates, when the Reserve Bank cuts its overnight cash rates.

That is expected to happen early next month.

All three had all argued that they needed to cover the costs of the money they lend, when they set their home loan rates.

But the National Australia Bank effectively undercut their argument yesterday, when its chief executive, Ahmed Farhour, promised that his bank would pass on a cut of 0.25 per cent, if that is what the Reserve Bank decides.

This leaves the other three banks with little choice but to follow suit.

The other three anks  would lose thousands of customers if they did not.

The Federal Treasurer, Wayne Swan, welcomed the NAB’s promise.

Both he – and the Prime Minister – Kevin Rudd, have been urging Australia’s banks to pass on any rate cut, in full, to their home loan customers.

Mr Swan told reporters in Brisbane that the NAB had made “a very good start.”

“This decision by the NAB throws down the challenge to all the other banks,” Mr Swan added.

But the NAB did not promise everything the Federal government had wanted.

Mr Farhour refused, for example, to pledge that the NAB would pass on the full rise if the Reserve Bank decides on a 50 basis point cut, next month.

The Oppostion Leader, Brendan Nelson, supported Mr Swan.

He said the opposition knew that Australia’s banks had been forced to pay more for the money they lend.

“…but we also know that their margins are extra-ordinarily healthy,” Dr Nelson said.

And with cost pressures now easing, Australia’s banks are now in a position to “pass it on now,” he added.

Wall Street – finally – rises

Wall Street’s falls finally stopped overnight – US time – and a late rally saw the market produce a moderate rise.

Energy and mining stocks led the rises and the computer giant Hewlett Packard produced a bright forecast.

But financials continued to weigh heavily on the market.

The Dow Jones industrial index closed 68.88 points up at 11,417.43.
The S&P 500 also gained 7.85 points on the day to end at 1,274.54.
And the tech heavy NASDAQ composite index closed 4.72 points higher at 2,389.08
Hewlett Packard gave the market a boost, posting an 11 per cent rise in its profits.

It also issued an earnings outlook report, which exceeded market expectations.

Shares in the computer giant rose by more than 5 per cent on the day.

But fears of a Federal bailout of the housing giants, Fannie Mae and Freddie Mac, saw their shares continue to sink. A bailout could leave private shareholders out in the cold.

Oil prices also rose overnight.

Oil futures gained $US1.68 to close at $116.22
And the Australian dollar was trading at 87.12 US cents a short time ago

Has the Reserve Bank killed the economy?

The Reserve Bank has now ordered 12 consecutive rate rises.

And it kept rates on hold earlier this month, because it feared a wage breakout.

Was all this overkill?

The evidence for that view is now mounting.

The latest came yesterday with the release of the Westpac-Melbourne Institute leading index.

The index has been designed to signal the likely pace of activity, three to nine months into the future.

In June, that index stood at 2 per cent.

That is at a level barely half that of its long term trend, of 3.9 per cent.

Westpac’s chief economist, Bill Evans, summed up just what that means, very bluntly.

“This is the slowest growth rate of the index since July 2001,” he said.

“And the sharpest fall in the growth rate since 2000.”

The Reserve Bank board knew that it was juggling big numbers, when it made its latest decision, a little more than two weeks ago.

Australia’s inflation rate had risen to 4.5 per cent.

And high interest rates had stepped hard on the economy’s brakes.

Mr Evans said the index – now – “underscores the need for rate cuts.”

By the Reserve Bank, that is.

Its board will meet, as usual, on the first Tuesday of next month, to review rates.

And a cut – of 25 basis points – is widely expected.

Of course that, alone, won’t help struggling home owners.

The other banks, including Westpac, would have to reduce their rates, before that would happen.

Presently, they seem reluctant to take that step, despite strong government pressure.

Swan dives on Liberals and banks

Wayne Swan is not missing any chances to increase pressure on either Australia’s banks or the Liberal party.

The Federal Treasurer is pressing the banks to pass on any cuts the Reserve bank might make in its cash rate.

And he is urging Liberal Senators to pass the May budget in full.

Mr Swan developed both themes yesterday, while visiting the James Cook university in Cairns.

As independents now hold the balance of power in the Senate, Mr Swan was asked why he isn’t pressing them to pass the budget.

He said the government had been waiting nine months for the Liberals to show “some responsibility.”

Instead, they are planning to “blow a big hole” in the budget.

“The Liberal party should, if they are economically responsible, pass our budget measures in full,” Mr Swan said.

“Having a strong budget surplus is an important buffer against international economic uncertainty,” he added.

The Opposition Leader Brendan Nelson vowed yesterday that the coalition would block several measures, contained in the government’s May budget.

The government says that would punch a $3.7 billion hole in its surplus.

Mr Swan was equally blunt, in his attack on the banks.

“If borrowing costs for the banks are going down, their mortgage rates should follow.

“It’s really that simple,” the Treasurer said.

He said Australia’s banks raised their home mortgage rates in “a nanosecond” when official rates rose.

“…I’m very hopeful that we will see some responsibility from the banks,” he said.

Wall Street slide continues

Share prices fell sharply again on Wall Street overnight, amid fresh fears in the financial sector and more weak economic data.

The Dow Jones industrial index closed 130.84 points down at 11,384.55.

The S&P 500 index lost 11.91 points to close at 1,266.69.

And the tech heavy NASDAQ composite index lost 32.62 points to close at 2,384.36.

But oil futures rose $US!.97 a barrel to close at $US114.84.

A short time ago, the Australian dollar was trading at 87.1 US cents.

Financial shares led the way down on Wall Street, amid fresh fears over the future of the housing institutions, Fannie Mae and Freddie Mac.

Shares in AIG, American Express, the Bank of America and JP Morgan Chase all suffered substantial falls.

The financial sector, overall, fell 3.7 per cent on the day’s trade.

The one bright spot overnight was a 14 per cent profit increase reported by Hewlett Packard, whose new notebook designs have been well received in the market.

New data showed housing starts in the US at a 17 year low.

And price increases were said to point towards stagflation in the US.

The rise in oil prices also hit the prospects – and share prices – of major retailers in the United States overnight.

Small business going backwards

Small business found itself going backwards, for the first time in five years, over recent months.

And the Australian Chamber of Commerce and Industry says small business is now facing the worst conditions it has seen, since the Chamber began surveying this sector back in 1996.

The chamber says an interest rate cut is needed urgently.

The Reserve Bank, for once, seems ready to oblige.

It admitted yesterday that the scope to move towards “a less restrictive setting of monetary policy” is now appearing.

The bank made that admission in the minutes of the board meeting it held earlier this month.

It published those minutes yestereday.

ACCI said small business operators expect a further decline in Australia’s economic growth over the coming year.

They reported, too, that their sales had contracted, in the June quarter of this year.

That was the first time this has happened in the past five years.

They noted, too, that there had been a significant fall in their profits.

The ACCI survey also showed that small business operators restrained their spending on new plant and equipment, as the economy turned sour.

Renters to be squeezed by a severe housing shortage

Australia’s housing stock is expected to fall 45,000 short of national requirements by June next year.

That estimate comes from the Housing Industry Association, which is predicting that families who need to rent will face particularly tough times.

The association’s policy chief, Chris Lamont, said it now appears that there will be no more than 145.000 housing starts this financial year.

He blamed a combination of high interest rates, expensive building materials and hefty statutory costs for the decline, from 154,200 starts last financial year.

“The time for navel gazing has long past, Mr Lamont said.

“This is not a cyclical trend that will correct itself,” he added.

Mr Lamont said the building industry has now been in decline for five years.

But even the Reserve Bank is now signalling that interest rates will soon be cut.

Won’t that help?

Mr Lamont is cautious about that.

“Interest rate reductions will, in time, boost confidence.

“And then construction activity.”

But he added a caution.

“We have a relatively inelastic supply side.

“So no immediate bounce is expected.

“And this is particularly bad news for those searching for affordable rental housing,” Mr Lamont  said.

With Australia’s population still growing strongly, both through natural increase and migration, there could be grim times ahead.