Confidence up; Car sales near record highs

Reserve Bank Board minutes: Weekly consumer confidence; Car sales

• Consumer sentiment: The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.6 per cent last week to stand 0.6 per cent higher than a year ago.
• New vehicle sales: Sales fell by 1.3 per cent in July but were still up 3.7 per cent on a year ago. The annual total of new vehicle sales hit a 19-month high and is 0.6 per cent below record highs.
• Reserve Bank Board minutes: Board members noted that the shift in the resources sector from investment to production “was being assisted by the depreciation of the exchange rate over recent months.”

What does it all mean?

• Consumer confidence is stuck in a groove at present. That is far from negative as the current confidence reading is above both short and longer-term averages. Factors like the Aussie dollar, petrol prices, home prices and sharemarket fluctuations will be important in driving confidence in the future together with political influences. The greatest threat to consumer confidence is the negativity of major political parties.
• Consumers may say that their confidence levels are only OK at present, but they continue to spend. Real retail trade is growing at the fastest annual rate in three years and new vehicle sales are not far from record highs.
• The Reserve Bank Board minutes provide little in the way of new information for consumers or businesses.

What do the figures show?

Reserve Bank Board minutes:

• Minutes of the Reserve Bank Board meeting held on August 4 can be found here: http://www.rba.gov.au/monetary-policy/rba-board-minutes/2015/2015-08-04.html
• The key quotes from the Board minutes:
  – No change in stance: “Members noted that an accommodative monetary policy setting remained appropriate given the forecasts, while observing that the Australian economy had been adjusting to the shift in activity in the resources sector from the investment to the production phase. This shift had been accompanied by significant declines in key commodity prices and was being assisted by the depreciation of the exchange rate over recent months.
  – Business sector: “members noted that non-mining business profits had increased, business conditions were clearly above average and businesses had been hiring more labour, partly encouraged by very low wage growth.”
  – Australian dollar: “…the further depreciation of the Australian dollar was expected to impart stimulus to the economy through stronger net exports.”
  – Unemployment: “The unemployment rate was expected to be a little lower than previously forecast, despite the revised growth profile, partly because the unemployment rate had been lower than expected in the June quarter, and partly because the revision to forecast aggregate demand had been broadly matched by a revision to forecast growth of the economy’s productive capacity as a result of lower population growth. However, members noted that there would always be uncertainty about the balance between the growth of aggregate demand and supply.”
  Consumer sentiment
• The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.6 per cent to a 7-week high of 113.2 in the week to August 16. Confidence is up 0.6 per cent over the year and up on the average of 111.5 since 2014.
• Two 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 +9 to +11;
  – The estimate of family finances over the next year was down from +25 to +24;
  – Economic conditions over the next 12 months was down from -5 to -8;
  – Economic conditions over the next 5 years was up from +1 to +9;
  – The measure of whether it was a good time to buy a major household item was down from +32 to +30 points.

New Vehicle Sales

• According to the Australian Bureau of Statistics (ABS) new motor vehicle sales fell by 1.3 per cent in July but were up 3.7 per cent on a year ago. Passenger car sales fell by 4.2 per cent in July; sales of “other” vehicles (includes utilities, panel vans, cab chassis, goods carrying vans, rigid trucks, prime movers, non-freight carrying trucks, and buses) fell by 0.5 per cent; and sales of sports utility vehicles rose by 2.1 per cent.
•  New vehicle sales by state: NSW (-2.2 per cent); Victoria (+1.7 per cent); Queensland (-3.5 per cent); SA (-0.9 per cent); WA (-2.2 per cent); Tasmania (-2.1 per cent); NT (-4.1 per cent); ACT (+0.2 per cent).

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 Australian Bureau of Statistics (ABS) provides monthly estimates of new vehicle sales in seasonally adjusted and trend terms after receiving the actual sales data from the car industry. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
• The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.

What are the implications for interest rates and investors?

• The latest economic information reinforces our view that interest rates will remain stable in coming months. Overall the Reserve Bank is more upbeat: “Domestically, economic activity had generally been more positive over recent months.”