The latest pickup in consumer confidence is hardly a surprise. The more timely weekly Roy Morgan survey consumer confidence rating was released last Thursday and indicated that sentiment rebounded from the lows. The similar results from both surveys are a further confirmation that consumers confidence is tracking sideways although the latest result does provide a modest degree of hope for the midterm outlook.
Most consumers still harbour doubts that the global financial crisis is truly over and the recent share market volatility coupled with concerns about the global economy has taken its toll on confidence in recent times. In fact consumer sentiment is still down almost 16 per cent on a year ago.

Interestingly the latest survey includes respondent’s views on the safest place to park additional funds. And over the past three month’s consumer’s view have become even more conservative with almost 38 per cent of respondents surveyed believing the safest place for savings is in the bank. Incidentally this result surpassed the conservatism shown during the global financial crisis and was the highest reading since December 1975.

The volatility in share markets has also altered consumer perceptions. Consumers are more likely to use saving, to cut their debt levels or put it in the bank rather than put it to work in the share market. In fact the preference for shares was the second lowest reading we have seen in 18 years. The fundamentals for Aussie listed companies remain sound but with the focus on global issues it is likely that the recent level of volatility will remain part of the landscape for the next few months.

Interestingly despite the uncertainty and prevailing pessimism there was a sizable 14.3 per cent quarterly rise in the gauge of whether it was a good time to buy a home. The recent cut in fixed interest rates by the banks seems to be enticing potential homebuyers. Even hits to the Commonwealth bank home loan website have noted a marked rise as potential homebuyers once again do the maths to work out borrowing amounts and loan repayments.

The latest dwelling commencement data paints a picture of a housing sector that is effectively going nowhere. Activity levels have dried up with potential home buyers remaining on the sidelines. However the growing likelihood of rate cuts may provide a much needed boost for the sector. Given the significant impact that housing has on an array of other sectors, a resurgence in housing activity will be needed to support broader economic growth over the coming year.

What are the implications for interest rates and investors?
Looking forward the conservative nature of both consumers and businesses suggest that activity levels will remain subdued and retailers will still need to discount in the near term.

From a longer term perspective it is not all bad news. The job market is healthy, the Reserve Bank looks unlikely to raise interest rates anytime soon. Looking forward an improvement in the global economy and a further period of interest rate stability will be needed to shore up confidence levels.

The post Preference for bank deposits hit 37-year high appeared first on AdviserVoice.