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· Credit provided to the private sector fell by 0.2% in September, to be up just 1.7% over the year.

· Business credit fell by 1.3% (to be down 4.6%pa), as more loans were repaid. The higher AUD helps

· Personal credit fell by 0.2% to be down 5.6% over the year, as consumers repay debt.

· Housing credit rose 0.7%, to be 7.7% higher over the year, past what looks to be the May trough.

Summary

The September credit figures are still signalling distinctly different activity trends in important parts of the economy. Business credit growth is still sliding in annual terms, with a very large 1.3% fall in the past month. Personal credit looks to be past the worst, but there are still signs of households balance sheet repair. Housing credit growth has, in our view, clearly turned in annual growth terms and could run along at current mild monthly growth rates until mid next year.

Total credit fell 0.2% higher in September and is only 1.7% higher over the past year.

Annual growth is still sliding.  It is the weakest since the early 1990s recession.

The contractions in business lending are not a positive development for the business investment outlook. But there could be valid reasons for the debt pay down. In any event it will reduce leverage and debt servicing costs in the future which could be an advantage. The higher AUD assists with foreign debt repayment. We expect an even higher AUD over coming months so the repayment of foreign currency debt could remain at relatively high levels until the AUD turns. A stronger share market is also positive for debt/equity swaps. So there are reasons to expect further slides in the monthly business lending figures even with the overall growth outlook improving.

Personal lending is falling as margin lending declines and households pay down debt. The credit card aggregates are still showing some unusually weak outcomes.  Repayment of leveraged share portfolios may not as pressing now that the ASX200 is climbing. Pressure to sell residential properties in the more expensive areas appears to have abated as the ASX rises.

Plans for plant and equipment spending have not been reduced according to the latest ABS Capex survey (for QII). The business surveys have been a bit bleaker, although they should become more positive given the more upbeat world and local growth outlooks in recent months.  But the large pipeline of State and Federal infrastructure programs in coming years will partially offset any potential sharp drop in business capex spending.

Housing credit rose by 0.7% in September to be 7.7% higher over the past year and to be past the May low point of 6.9%pa. New housing lending will continue to rise in response to low mortgage rates. But there is obviously a strong offsetting repayment trend by mortgagors with monthly repayments kept at 2008 levels.