The Westpac/Melbourne Institute index of consumer confidence rose by 4.7 per cent in June. All five components of the index rose in June. The index is up 6.9 per cent over the year to June.
- In the June quarter, 34.0 per cent of consumers believe that the wisest place for new savings is in the bank followed by real estate (24.6 per cent of respondents), Pay Debt (15.7 per cent), and shares (8.4 per cent).
- Low rates spur lending. Total lending finance rose by 2.3 per cent in April after rising by 2.3 per cent in March.
- Lending is down 1.9 per cent on a year ago.
What does it all mean?
- The rebound in consumer confidence was certainly a surprise, especially given the falling Aussie dollar, rising fuel prices and ongoing rout on share markets. All three factors would generally make households a little bit more despondent about life. However this time round confidence lifted well back into optimistic territory. The key defining factor that could have supported the boost in confidence is the Reserve Bank’s decision to leave interest rates unchanged earlier in the month.
- Last month the central bank cut interest rates and confidence levels took a bath however this time round interest rates were left on hold and consumers felt more comfortable about the outlook. What is clear is that the Australian economy has changed. Cutting interest rates from six per cent down to 5 per cent provides a significant benefit across the economy however when rates are cut from already super low levels to 53 year lows it does send the message that there may be something wrong with the health of the domestic landscape.
- Another defining factor is that the value of term deposits in the economy is actually greater than the value of owner occupied home loans. So when rates are cut interest income is reduced by a larger proportion than the reduction in owner occupied mortgage repayments. Looking forward the impact of further rate cuts is likely to be muted.
- The knee-jerk lift in confidence is all well and good, but the key question is what people do now. And it’s clear that many consumers are intent on being cautious about their investment options. In fact the latest readings on what consumers would do with any additional savings suggest that conservatism is still the big driver. Around a third of Aussies believe the wisest place for new savings is in the bank. While investing in shares tracked modestly lower in the June quarter. It is clear that the ongoing global economic concerns, weakness across an array of sectors and a sluggish labour market are seeing households remain hesitant about the economic landscape.
Encouragingly housing was looked at more attractively with real estate more in favour – with super low rates, the jobless rate low, no oversupply of properties, there are plenty of good reasons to be looking at property.
What do the figures show?
Consumer sentiment:
- The Westpac/Melbourne Institute index of consumer sentiment rose by 4.7 per cent in June to 102.2. The index is up 6.9 per cent over the year.
- The current conditions index rose by 5.5 per cent, while the expectations index rose by 4.1 per cent.
All five of the components of the index rose in June:
The estimate of family finances compared with a year ago rose by 8.5 per cent;
The estimate of family finances over the next year rose by 5.3 per cent;
Economic conditions over the next 12 months rose by 3.8 per cent;
Economic conditions over the next 5 years rose by 3.2 per cent;
The measure on whether it was a good time to buy a major household item rose by 3.7 per cent.
Gender & demographics: Men (index reading of 105.5, up 1.8 per cent) remain more optimistic than women (98.9, up 7.7 per cent). Young people (18-24 years) were more optimistic in June (index up 86.7 per cent to 144.5). Across the other demographics: 25-44 years, (index 107.4, up 5.1 per cent); 45 years plus (index 92.1, down 5.1 per cent). - By home ownership status: Confidence amongst tenants rose by 21.7 per cent; confidence by those who own their homes was up 0.4 per cent; while confidence levels by those paying off home loans rose by 2.0 per cent.
- Homes & Cars: The “time to buy a dwelling” index rose by fell by 0.8 per cent in the June quarter to 143.3. The “time to buy a car” index fell by 2.9 per cent in the June quarter to 138.4.
- Wisest place for savings: Banks remain the wisest place to put new savings according to the survey. But while 34 per cent believe the wisest place for savings was in the bank, the result was over the quarter. Next highest was real estate (24.6 per cent, up 3.3 percentage points), followed by Pay Debt (15.7 per cent, down 2.3pp), and shares (8.4 per cent, down 0.2pp).
Lending Finance:
- Total new lending commitments (housing, personal, commercial and lease finance) rose by 2.3 per cent in April after rising by 2.3 per cent in March. Lending is down 1.9 per cent on a year ago.
- Housing finance (owner occupier and investment and alterations & additions) fell by 0.9 per cent in April after rising by 5.0 per cent in March. Housing lending is up 5.2 per cent over the year.
- Commercial finance rose by 3.2 per cent in April after rising by 1.7 per cent in May. Revolving credit commitments rose by 10.2 per cent in April. Fixed lending commitments rose by 0.8 per cent. Commercial loans are down 9.9 per cent on a year ago.
- Personal finance rose by 5.2 per cent in April with revolving credit commitments up 16.1 per cent and fixed lending commitments fell by 1.4 per cent. Personal loans are up 15.6 per cent on a year ago. In terms of fixed loans all categories were up on a year earlier. Debt consolidation was up 68.7 per cent with blocks of land up 28.7 per cent.
- Lease finance fell by 1.5 per cent in April. Lease loans are down 8.2 per cent over the year.
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.
- Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.
What are the implications for interest rates and investors?
- The Reserve Bank is likely to be encouraged by the latest consumer confidence results. There are plenty of good reasons for Aussies to be encouraged by the state of their economy, but it is likely that the shifts in the Aussie dollar, fuel prices and share markets will dominate sentiment – particularly in the lead up to the election.
- CommSec expects the Reserve Bank to maintain its easing bias but it may not follow through with another rate cut until later in the year.