Consumer confidence rose 7.8% in August, more than reversing the hit from the Chinese and Greek turmoil last month. However, at an index reading of 99.5 it remains below its long term average and has basically been stuck in a 90-100 range for more than a year.
- Business confidence is a bit more positive, but not much.
- Wages rose 0.6% in the June quarter, which left annual wage growth at a record low of 2.3% year on year. Private sector wage growth is fractionally lower at 2.2% year on year.
Implications
- The combination of subdued consumer confidence and weak wages growth points to constrained consumer spending. Fortunately, wealth gains and low interest rates are providing a bit of a positive offset and helping drive reasonable retail sales growth.
- Weak wages growth indicates that there is little impetus to inflation coming from labour costs, which in turn supports the view that inflation will remain low providing scope for the RBA to cut interest rates again if needed. While it’s a close call, another rate cut is still more likely than not I think.