Confidence on the mend

Consumer confidence

• The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.6 per cent last week after rising by 4.5 per cent in the prior week. Three of the five of the components of the index rose in the latest week.

What does it all mean?

• Confidence levels continue to be repaired. After sliding by eight per cent in the first two weeks of July, confidence has now lifted by over 5 per cent in the past fortnight. In short, with Greece retreating from the headlines and iron ore prices stabilising, confidence has recovered. Less global volatility and a focus on fundamental domestic conditions may help confidence levels lift further in coming weeks.
• However one major concern for consumers would be the sliding Australian dollar. Most households would prefer a higher Australian dollar (cheaper overseas goods, overseas travel and lower fuel prices). In contrast for the broader economy a lower currency would provide a boost to exports and support overall economic growth.
• Much is written on the machinations in consumer confidence. But if you take a longer-term perspective, confidence is only down three per cent on a year ago. While consumers aren’t jumping for joy, confidence levels are “normal”. Low borrowing rates, rising home prices, an improving job market and growing economy are all supporting confidence levels. We expect the Reserve Bank to keep rates on hold for the rest of 2015.

What do the figures show?

Consumer sentiment

• The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.6 per cent to 112.5 in the week to July 26. Confidence is down 3.2 per cent over the year and up on the average of 111.5 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 up from +6 to +8;
  – The estimate of family finances over the next year was up from +23 to +24;
  – Economic conditions over the next 12 months was down from -7 to -9;
  – Economic conditions over the next 5 years was unchanged at +4;
  – The measure of whether it was a good time to buy a major household item was up from +33 to +35 points.

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.