The Westpac-Melbourne Institute Leading Index is back above trend, according to the April report released on Wednesday. The six-month annualised deviation from trend growth rate in the index, which indicates the likely pace of economic activity three to nine months in the future, rose from negative 0.02 per cent in March to 0.43 per cent in April. One of the key factors for the rise in the index was attributed to improvements in aggregate monthly hours worked, the ASX and dwelling approvals.
Westpac Senior Economist Matthew Hassan noted that the lift was a positive sign, albeit the “pulse” of the economy was not very strong. “The Leading Index growth rate has been above trend for three of the first four months in 2015. That compares favourably to 11 out of 12 months in 2014 that were materially below trend. However, at 0.43%, the growth rate in April is still well below the 0.78% average pace in 2013 and lacklustre by historical standards,” he said. The index was 0.43 per cent below trend in November 2014 but has now swung to 0.43 per cent above trend in April.
Nearly all components have contributed to the positive numbers. However, in some case, the “positive” contribution came in the form of reduced drag from struggling sectors rather than true positive contributions. Aggregate monthly hours worked rose 0.44 points, the ASX200 rose 0.24 points and dwelling approvals rose 0.23 points. Improvements in consumer sentiment have also lifted the index. Despite the turnaround, economists at Westpac are wary of the positive data. “The component mix raises questions about how well the newfound above-trend growth pulse will be sustained. In particular, the support from improved consumer sentiment largely reflects the direct initial boost from RBA interest rate cuts in February and May and a better than feared Federal Budget,” the report noted.
Author: Matthew Dibb
May 27, 2015
Matthew has an extensive track record in equity markets and derivative advisory. Spanning a career in several investment banks and prviate wealth groups including Macquarie Bank, his specialist knowledge relates to capital market advisory and equity market analytics. Matthew has a diploma in Financial Advisory, Applied Finance and is ADA 1 & 2 accredited.