Consumers: More confident, better off

Consumer confidence; Standard of living

• Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.5 per cent in the week to March 22 to a reading of 111.4, broadly in line with the average recorded since 2014.
• Standard of living: The SAS-NATSEM household budget report shows that the standard of living rose 0.7 per cent in the December quarter with income up 0.8 per cent while the cost of living was unchanged.

What does it all mean?

• Perhaps Australia has turned the corner. Consumer confidence rose again in the past week with the reading now largely “normal” – in line with the average result recorded since the start of 2014.
• Aussie consumers probably believe that their standard of living has gone backwards over the year and over the past five years. In fact in the latest weekly consumer confidence survey, the assessment of family finances over the past year was at a seven-month low.
• But the number crunchers at the National Centre for Social and Economic Modelling (NATSEM) conclude differently. NATSEM believes that the average household is almost $1,000 better off over the past year and almost $4,000 better off over the past five years. Consumers can take comfort in the findings – produced by highly regarded and independent experts at the University of Canberra.
• The Reserve Bank believes that rate cuts are still beneficial for the economy and the NATSEM researchers agree. On average, people less than 25 years old are estimated to be better off to the tune of $116 a year from the last rate cut with those between 25-64 years of age better off by $318 over a year. But those over 65 years of age are estimated to be worse off by $29 over a year from the past rate cut.

What do the figures show?

Consumer sentiment:

• The ANZ/Roy Morgan consumer confidence rating lifted further away from six-month lows, rising by 0.5 per cent in the week to March 22 to 111.4, in line with the average since 2014.
• Three of the five components of the index rose in the latest week:
• The estimate of family finances compared with a year ago was down from +6 to +2 (seven-month low);
• The estimate of family finances over the next year was down from +25 to +24;
• Economic conditions over the next 12 months was up from -8 to -6;
• Economic conditions over the next 5 years was up from +1 to +5;
• The measure on whether it was a good time to buy a major household item was up from +30 to +32.

Standard of living:

• The SAS-NATSEM household budget report reveals that the standard of living rose by 0.7 per cent in the December quarter with incomes up 0.8 per cent and the cost of living unchanged in the quarter.
• Contributing most to the cost of living in the December quarter was holidays /airfares (up 0.2 percentage points or 0.2pp) followed by alcohol & tobacco (up 0.1 per cent). The biggest reductions in the cost of living were health and Audio visual (both down 0.1pp).
• Over the past year the standard of living rose by 1.2 per cent. And over the past five years the standard of living rose by 1.0 per cent.
• All states and territories recorded increases in the standard of living in the December quarter of between 0.5-0.9 per cent.
• In financial terms, Australian households recorded financial gains of $578 over the last quarter, $988 over the past year and $3,838 over the past five years (in 2014 dollars).
• The report found that Australian households have recorded a 59 per cent gain in their financial standard of living since 1988.
• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
• “The SAS-NATSEM Household Budget Report is an interactive web-based tool providing national measures of cost of living and standard of living for Australian households. The report broadens the cost of living debate by the inclusion of household incomes into a standard of living index.”
• “This quarterly report provides insights into the movement of the cost of living, incomes and the related standard of living for a range of different household types, including income levels, main source of income, renters, mortgagors, family type and states.” The data provides further insights for retailers and consumer-focussed businesses.
• The Reserve Bank hierarchy has indicated that they are prepared to cut rates further if necessary. But if confidence starts recovering and consumers and businesses embrace the positives, then rates may stay where they are – at least for a little while longer. Overall we are tipping another rate cut in May, providing that the next inflation figures contain no surprises and the outlook suggests that inflation is likely to remain contained.

What is the importance of the economic data?

• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
• “The SAS-NATSEM Household Budget Report is an interactive web-based tool providing national measures of cost of living and standard of living for Australian households. The report broadens the cost of living debate by the inclusion of household incomes into a standard of living index.”
• “This quarterly report provides insights into the movement of the cost of living, incomes and the related standard of living for a range of different household types, including income levels, main source of income, renters, mortgagors, family type and states.” The data provides further insights for retailers and consumer-focussed businesses.

What are the implications for interest rates and investors?

• The Reserve Bank hierarchy has indicated that they are prepared to cut rates further if necessary. But if confidence starts recovering and consumers and businesses embrace the positives, then rates may stay where they are – at least for a little while longer. Overall we are tipping another rate cut in May, providing that the next inflation figures contain no surprises and the outlook suggests that inflation is likely to remain contained.