Consumer Sentiment – November 2013
- Consumer sentiment rose by 1.9% in November to be 5.8% higher than a year ago.
- Sentiment is around its three year high.
- Low mortgage rates, strong house and share price growth, and an elevated currency are keeping consumer confidence buoyant.
- Confidence amongst renters, however, has dipped due to rising property prices reducing affordability.
- The Westpac‑Melbourne Institute unemployment expectations index rose by 0.9% following a small lift in October. It is at a high level overall which indicates consumer fears over job security remain elevated.
Summary
Consumer sentiment on the rise.
Sentiment is impacted by a number of different economic, social and political influences. And a number of factors are keeping total consumer confidence at an elevated level. But looking at consumer confidence by demographics shows that while confidence amongst home owners has soared by 11.6% over the year (6.1% over the month), sentiment amongst tenants has declined over the year by 11.6%. This is due to the rapid increase in house prices.
Rising property prices are a double‑edged sword for consumer sentiment. For home owners, rising property prices improves confidence by strengthening balance sheets through a lift in net worth. But for tenants, many of whom are prospective home owners, the recent appreciation in property prices reduces affordability and therefore dampens confidence. Sentiment is generally about relative, not absolute, position. So as renters fell relatively worse off compared to home owners, the gap in consumer confidence widens accordingly. The time to buy a dwelling index rose by 4.4% in November, most likely due to expectations of further house price appreciation.
In addition to rising property prices, low interest rates are boosting confidence amongst people with a mortgage and people carrying debt. Low interest rates means lower monthly mortgage repayments, the ability to repay debt quicker or cheaper new debt. Savers, however, are losers when rates go down as deposit rates fall. But the gain to borrowers tends to have a more positive reaction than the negative reaction by savers. Particularly given some of the largest savers are people who own their homes outright and are currently benefitting from strong house price growth.
Equities are also up and the stock market is at 5‑year highs. Like property, rising share prices strengthens household balance sheets. Another factor contributing to positive sentiment is the elevated AUD. After a dip around the middle of the year, the Aussie dollar was trading around 95 US cents when this month’s survey was taken. To consumers, this means both cheaper overseas holidays and cheaper online shopping at intentional retailers. And a stronger local currency is also perceived as a sign of economic strength.
Four of the five components of the headline index increased in November. The largest increase was in family finances versus a year ago (13.3%). This was followed by the good or bad time to buy a major household item (+4.4%). The economic conditions next 5 years (+0.5%) and next 12 months (+0.4%) recorded small increases over the month. The component index about family finances next 12 months fell solidly (‑7.9%).
The Westpac‑Melbourne Institute Unemployment Expectations Index was also published today. It rose by 0.9% in November following an increase of 0.6% in October. Despite the unemployment rate remaining around 5¾%, employment growth is weak and job vacancies are low. As such, consumer concerns about job security are elevated.