The most significant economic development in South Australia this week will of course be the cessation of local motor vehicle production when Holden ends manufacturing operations at its Elizabeth plant this Friday. About 950 employees will be directly affected by the closure, while additional jobs will be lost through the supply chain. Adjustment to the factory’s closure has been ongoing over the last few years, with about 800 employees having left the factory since the closure was announced in December 2013.
New motor vehicle sales fall
Turning to the latest data releases for South Australia, estimates of new motor vehicle sales compiled by the Federal Chamber of Automotive Industries and published by the Australian Bureau of Statistics reveal that new motor vehicles softened in September. Total new vehicle sales for South Australia fell by 0.7 per cent for the month, while national sales were down 0.3 per cent. Despite these falls, sales for both were higher compared to a year earlier (up 1.1 per cent and 1.7 per cent respectively).
Looking at longer term compositional changes in new motor vehicle sales highlights one of the many factors that contributed to the decline of local vehicle manufacturing in Australia: namely the diversification of consumer tastes away from passenger vehicles, which were the staple of local manufacturers, towards sports utility vehicles. In 2006/07, passenger vehicles accounted for 62 per cent of total new vehicle sales in Australia. By 2016/17, passenger vehicle sales had fallen by 25 per cent and represented 40 per cent of total sales. In comparison, sales of sports utility vehicles rose by 151 per cent over this period, increasing their share of the market from 18 to 38 per cent. The loss of sales volumes had adverse economies of scale impacts on local manufacturers, negatively impacting their competitiveness; and diversifying local production to meet emerging consumer needs could not be easily implemented.
Housing loans activity continues to decline
Home lending activity in South Australia continued to ease in August, continuing a downward trend that has been in progress since last spring. The latest data from the ABS indicates that in trend terms, the number of commitments for owner occupied housing fell by 0.3 per cent in August, to be down 8.4 per cent compared to a year earlier. These results stand in contrast to the national trend, whereby the number of commitments rose by 1.0 per cent in August, and was up 3.5 per cent over the last year.
On a more positive note, the seasonally adjusted estimate of the number of finance commitments for owner occupied housing in South Australia rose by 2.8 per cent in August, which could signify a turning point on the current lending cycle.
Interestingly, disaggregated data indicates that the decline in home lending activity over the past year has been largely driven by a decline in refinancing of established dwellings. This development may reflect reduced scope for deriving mortgage savings via refinancing since home lending rates have stabilised at a lower level over the past year, following a steady decline over the previous 5 years.
Although the number of owner occupied housing finance commitments for the construction of new homes was down moderately over the past year, they have improved considerably since the start of the calendar year, which is a positive sign for residential building activity going forward.
Solid rise in building activity confirmed for June quarter
Back in early September we observed that ABS preliminary estimates of building activity indicated that building activity in South Australia rose solidly during the June quarter 2017. Updated estimates released by the ABS last week confirmed these preliminary results. The value of building work done in real trend terms rose by 2.8 per cent in the June quarter. Seasonally adjusted data indicates there was a significant increase in non-residential building work done in the June quarter (up 14 per cent), while residential building work done also rose solidly (up 4.4 per cent).
South Australia enjoying cyclical recovery
The latest State Economic Handbook from the National Australia Bank concludes that South Australia “is experiencing a cyclical recovery, with infrastructure spending, international education and tourism, and manufacturing (outside of auto and steel, including wine) performing well”. The handbook can be viewed here.