0.1 in a data point shows RBA was right to hold rates

Photo: Getty/ John Moore

It’s only 0.1 point but it’s the important 0.1 point that proves the RBA was right to wait and watch the Australian economy and keep the official cash rate on hold this week.

In the past few days we’ve seen the good news that Australia’s massive services sector is expanding once again. So, today’s release of the AiGroup’s Performance of Construction Index which printed 50.1 – back in the expansion zone – is further encouragement that monetary policy is working its way through the economy.

Housing, both single unit and apartments, is the primary driver of the mild expansion in Australia’s construction sector, while commercial is contracting at a slower pace and mining is still trending lower.

The AiGroup said:

The improvement in March was largely driven by a solid increase in house building activity (up 10.4 points to 55.8), which ended three months of contraction by expanding at its strongest rate since October 2014. Apartment building activity also continued to strengthen, rising 1.8 points to 54.9 – its healthiest pace in four months. In contrast, mining-related engineering construction weakened further in March (down 1.5 points to 41.2 – a 10-month low), and commercial construction again declined, although the pace of contraction was slower than in February (up 5.2 points to 47.0).

Perhaps the really good news though is that new orders leapt 12.1 points to 50.8.

Many will argue the concentration of economic growth in housing is just another example of the lack of diversification within the Australian economy. But, the key here is that this is the sector the RBA has been aiming at to do the heavy lifting in jobs — and activity more generally — to bridge the gap while the economy adjusts.

So it’s a sign that monetary policy is doing its job as the RBA hoped.

It’s now over to the budget and consumer confidence. If we can get a positive outcome for both of these then the second half of 2015 might surprise given the wealth effect of stocks, super and housing.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.