In the latest survey concerning the wisest places to put new savings, 25 per cent of respondents said “real estate”, up sharply from just over 18 per cent in the preceding quarter’s survey.
- However, Aussie consumers still gloomy. The Westpac/Melbourne Institute index of consumer confidence rose by just 0.3 per cent in June to a reading of 95.6. Any reading below 100 suggests consumers are more pessimistic than optimistic.
- The outlook for family finances in a year’s time has hit a 22-year low.
What does it all mean?
- There were few surprises in the monthly reading on consumer confidence – the Roy Morgan weekly survey had already been released on Tuesday and it showed only a modest lift in consumer spirits. And that is despite a rate cut, good reading on economic growth and solid rise in employment in the latest month. It is clear that some good domestic news was no match for continued gloom about Europe, a volatile sharemarket and weaker Aussie dollar.
- If there was one surprise it was on the outlook for personal finances in a year’s time. The index plunged 7.7 per cent in June to the lowest reading in almost 22 years (since December 1990). Certainly it was the lowest reading since the last recession. Why the gloom about finances? The only identifiable factors are the carbon tax and the European Debt Crisis. Presumably people are worried about what the carbon tax means for their household budgets. There may also been some angst about Europe and whether the sharemarket will recover. But other factors like rate cuts and higher wages are positive for personal finances.
- Where there is real value in the Westpac/Melbourne Institute monthly index of consumer confidence is in the question about the wisest place to put new savings. Still out in front is “banks” – almost 33 per cent believes that the wisest place to put new savings is in bank term deposits or high interest accounts. Mind you it’s banks and not “building societies” (1.1 per cent), “credit unions” (1.1 per cent), or “cash management trusts” (1.6 per cent).
- But the proportion nominating banks as the wisest place for new funds fell in the quarter from 34.6 per cent to 32.6 per cent. The big improver was “real estate”, up from 18.6 per cent to 25.0 per cent and passing “pay debt” with 20.4 per cent. But there was no improvement in “shares” – those nominating it as the best place for new savings stood at 5.3 per cent – the lowest reading in almost 20 years.
- No doubt the fact that interest rates are coming down, immigration is rising and new building remains weak were all aspects causing respondents to nominate property as one of the wisest places for new funds. In other words, demand is expected to rise but the supply of homes is not expected to keep pace, so prices are expected to rise. And the logic is entirely reasonable.
What do the figures show?
- Each quarter the Westpac/Melbourne Institute index of consumer sentiment asks respondents to nominate the wisest places to put new savings. In the June quarter, “banks” were nominated by 32.6 per cent of respondents (down from 34.6 per cent in the March quarter). Next best was “real estate” (25.0 per cent, up from 18.6 per cent), “pay debt” (20.4 per cent, down from 22.7 per cent), “shares” (5.3 per cent, down from 5.4 per cent), and “spend it” (4.8 per cent, unchanged).
- It was the highest reading for “real estate” in almost seven years but lowest reading for “shares” in almost 20 years.
- The index showing whether it was a good time to buy a dwelling rose by 5.9 per cent in the June quarter – up from 120.8 to 128.0.
- The index showing whether it was a good time to buy a car rose by 2.1 per cent in the June quarter – up from 122.1 to 124.7.
- The Westpac/Melbourne Institute index of consumer sentiment rose by 0.3 per cent in June, lifting from 95.3 to 95.6. The index is 5.6 per cent lower than a year ago.
- The current conditions index rose by 6.4 per cent, while the expectations index fell by 3.9 per cent.
Two of the five components of the index rose in June:
- The estimate of family finances compared with a year ago rose by 4.6 per cent
- The estimate of family finances over the next year fell by 7.7 per cent
- Economic conditions over the next 12 months fell by 0.2 per cent
- Economic conditions over the next 5 years fell by 3.8 per cent
- The measure on whether it was a good time to buy a major household item rose by 7.5 per cent.
- Gender & demographics: Men (index reading of 94.2) were less optimistic than women (96.8). Young people (18-24 years) were less optimistic in June (index down 8 per cent to 111.6). But they are still more optimistic than older age groups: 25-44 years, (index 98.9, up 2 per cent); 45 years plus (index 89.5, up 0.7 per cent).
What is the importance of the economic data?
- Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
What are the implications for interest rates and investors?
- The positive views on property purchases represent good news for the beleaguered housing market. Hopefully consumers will follow through on expectations.
- The Reserve Bank would be worried about consumer gloom on the outlook for their finances. Rate cuts must stay on the table.