More confident, but does it matter?

Consumer confidence

• Consumer sentiment: The Westpac/Melbourne Institute index of consumer confidence rose by 2.4 per cent in January to 93.2. The ANZ-Roy Morgan weekly survey previously showed that confidence rose by 2.9 per cent over the same survey dates.
• Confidence soars: Confidence rose in four of the five states surveyed – Western Australia rose by a very surprising 47.1 per cent!

What does it all mean?

• Based on trends over the past three years, consumer confidence doesn’t have the same predictive power as in the past. In fact consumer confidence basically tracked sideways over 2014 and currently the proportion of pessimists outweigh optimists. But over 2014, retail spending has grown at a faster pace than the long-term average. Further, 2014 was the second highest year for new car sales and sales in December were a record for a December month. New dwelling starts are at record highs. And home prices showed solid gains over 2014. Overall, spending and housing activity are solid despite variable confidence levels.
• Consumer confidence rose over the past month in response to lower petrol prices, positive news on the job market and expectations of stable interest rates. But there are no guarantees that consumers will go out and spend – they may instead decide to save the windfall gains reaped at the petrol pump.
• Still, there is potentially good news for real estate agents, car dealers and electrical good stores with consumers more positive on buying a major household item.
• The demographic data can bob around from month-to-month as figures aren’t seasonally adjusted. But there was a hefty 34.1 per cent increase in sentiment from middle Australia (those with incomes from $40,000 to $60,000). This grouping is probably filled with happy motorists paying lower fuel prices. And confidence is higher than at the same point in 2013 or 2014. Notably those in cities are happiest as petrol prices have fallen more in these areas than in regional Australia. And confidence of those in metro regions did lift 13.2 per cent in January.

What do the figures show?

Consumer sentiment:

• The Westpac/Melbourne Institute index of consumer confidence rose by 2.4 per cent in January to 93.2 points. The confidence index is down 9.7 per cent over the year.
• The current conditions index rose by 6.0 per cent in January, while the expectations index fell by 0.3 per cent.
• Just two of the five components of the index rose in January:
• The estimate of family finances compared with a year ago fell by 3.9 per cent;
• The estimate of family finances over the next year was up by 1.2 per cent;
• Economic conditions over the next 12 months was down by 0.7 per cent;
• Economic conditions over the next 5 years was down by 1.6 per cent;
• The measure on whether it was a good time to buy a major household item was up by 13.6 per cent.
• Gender & demographics: Men (index reading of 99.7, up 5.6 per cent) are still more optimistic than Women (95.9, up by 9.1 per cent). Young people (18-24 years) have become pessimistic with the index down by 12.9 per cent to 102.1. Across the other demographics: 25-44 years (index 110.1, up 18.1 per cent); 45 years plus (index 91.5, up 4.3 per cent).
• State sentiment levels: NSW (up 17.4 per cent), Victoria (up 0.7 per cent), Queensland (down 3.9 per cent), Western Australia (up 47.1 per cent) and South Australia (up 4.6 per cent).
• 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.
• Consumers are more confident. And while this should be positive for retailers, it is still a case that price and relative value for money matters more. So while policymakers will monitor confidence levels, it is just another factor in the mix.

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?

• Consumers are more confident. And while this should be positive for retailers, it is still a case that price and relative value for money matters more. So while policymakers will monitor confidence levels, it is just another factor in the mix.