Data Diary

Australian July credit – last true believer buys another house

Posted on 01 September 2010

RBA financial aggregates for July were released yesterday (here) – in brief:

• Housing credit increased by 0.5 per cent over July. Over the year to July, housing credit rose by 8.1 per cent.
• Other personal credit was flat over July. Over the year to July, other personal credit increased by 3.2 per cent.
• Business credit fell by 0.4 per cent over July. Over the year to July, business credit declined by 5.0 per cent.

To throw a little shawl around these statistics, the following chart provides a longer term context:

Business continues to paydown debt – even in the face of the rising tide of capital investment in the resources sector.  At the same time, leverage in relation to housing remains surprisingly strong.  To get a sense of how the Australian household wallet is evolving consider the following chart:

I may be suffering from selection bias here – after all, housing credit is still growing at an annualised rate of ~8% – but it looks to me like the trend for growth in housing debt is down.

So how is this credit demand flowing into the money creation machine?  Looking to M3 – the squeeze on money supply growth is continuing:

It’s a less than glowing endorsement for the demand side of the domestic economy.  Its interesting then to consider what the increasing preference for term deposits means for the velocity of money and risk preferences in the Australian economy.

So while term deposits reached a minimum of 23% of M3 in late 2007, they have now risen to ~33%.  Wonder whether they could revisit the 40% levels last seen in the mid-90′s?