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Economists eyed scrappy data

Economists faced a scrappy batch of divergent economic signals this week.

JP Morgan economist Ben Jarman said the mix of lower residential building approvals and a blip in credit growth was "messy".

Approvals were down five per cent in June while credit growth jumped by a 0.7 per cent, the biggest rise since the global financial crisis.

"The reality is somewhat less interesting than the headlines," Mr Jarman said.

The fall in approvals was a return to trend after some strong rises, he said, "so it's premature to be calling an end to the growth impulse from non-mining building work".

ANZ economists Riki Polygenis, Katie Hill and Dylan Eades said the trend had softened, but approvals are still at elevated levels and expect a "solid cyclical upturn in housing construction" to continue this year.

Most economists recognised that the blip in credit was due to a one-off increase linked to a major corporate restructure (most likely Westfield).

But the batch of figures was still a "mixed bag", pulling in different directions, Royal Bank of Canada economist Su-Lin Ong said.

ABS figures showed export prices falling more than import prices, indicating a further fall in the terms of trade in the June quarter.

"We have long argued that further likely declines in the terms of trade and the accompanying implications for subdued national income remain a headwind for consumers and are likely to see household consumption stay sub trend in both 2014 and 2015," Ms Ong said.

And she expects the data next week - which include the real-terms retail trade figures for the June quarter - to be "patchy".

Bank of America Merrill Lynch economists Saul Eslake and Alex Joiner said in a report that the trade price figures suggest the terms of trade, although falling, is probably better than the expectations embodied in the budget forecasts by Treasury in May.

Still, it means continued slow growth in real quantity of goods and services the income from GDP can buy, which will weigh on the economy.

"This comes at a time when the decline in the mining investment cycle is also weighing on real GDP growth.

"These factors are driving our view that GDP growth will remain below trend over the coming year and well into 2015," Eslake and Joiner said.

This was one reason that they expect the RBA to be able to keep the cash rate steady for an extended period.

Most economists expect the RBA to start nudging the cash rate higher either late this year or in 2015.

But Eslake and Joiner expect the start of the cycle of monetary tightening - and a gradual one at that - to be delayed until the first quarter of 2016.

Their view was bolstered by some tame producer price index data on Friday.

"The data do not have a strong relationship with consumer prices but do highlight that price pressures in the broader economy remain subdued given the amount of excess capacity that exists," they said.