Confidence spikes: Now back above ‘average’

Tue, 29 Aug 2017 21:50:40 +0000

Consumer sentiment; New home sales

Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating rose by 3.9 per cent, lifting from a near 12-month low of 109.2 to 113.5 in the week to August 27. The confidence reading is now back above the average of 113.2 recorded since 2004 and long-term average of 112.9.
New home sales: Sales of new homes fell by 3.7 per cent in July, driven by a 15.7 per cent fall in multi-unit sales.
Consumer confidence data is important for retailers. The home sales data has implications for banks, retailers, developers, building and building material companies.

The perception is that Aussie consumers are gloomy. In reality the latest reading of consumer sentiment is broadly in line with short and longer-term averages. Consumers aren’t exuberant, but neither are they significantly downbeat. Simply there are a lot of issues at present so it is probably better to describe consumers as ‘reflective’.
And clearly if consumers were very pessimistic, they wouldn’t be spending the way they are at present. Annual growth of real retail spending is 2.5 per cent – in line with the decade average. And the 1.5 per cent real lift in retail spending for the June quarter hasn’t been bettered in eight years.
The measure of whether it was a good time to buy a major household item rose has generally held above the long-term average since May, confirming that consumers are open to spending if the price is right.
The drop in new home sales is consistent with a slip, rather than slump in housing construction activity. We continue to expect a ‘soft landing’ in new construction, sales and home prices.

The weekly ANZ/Roy Morgan consumer confidence rating rose by 3.9 per cent, lifting from a near 12-month low of 109.2 to 113.5 to in the week to August 27. Confidence is still down 4.1 per cent over the year but back above the average of 113.2 since 2014.
All of the five components of the index fell in the latest week:
- The estimate of family finances compared with a year ago was up from +3 to +7;
- The estimate of family finances over the next year was up from +16 to +24;
- Economic conditions over the next 12 months was up from -6 to -1;
- Economic conditions over the next 5 years was up from -2 to zero;
- The measure of whether it was a good time to buy a major household item was up from +35 to +37.

In seasonally-adjusted terms, new home sales fell by 3.7 per cent in July. The number of detached house sales fell by 0.4 per cent while multi-unit dwelling sales fell by an even larger 15.7 per cent.
The Housing Industry Association reported: “Sales of new detached houses during July 2017 fell by 0.4 per cent nationally to their lowest level since October 2014. Victoria was the only state to experience growth (+9.8 per cent). Detached house sales fell in South Australia (-16.2 per cent), Queensland (-16.1 per cent), Western Australia (-9.1 per cent) and New South Wales (-5.2 per cent) during the month.

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 Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 home builders. The survey covers around 14 per cent of the home building industry.

Consumers are far from downbeat. More appropriately confidence is just ‘OK’ without being super-positive or negative. Spending in the economy remains healthy.
Home sales are understandably easing to more ‘normal’ levels. But activity will continue to vary substantially across regions.
The Reserve Bank will closely watch housing indicators in coming months with the hope that a soft landing is achieved. In the profit-reporting season Stockland reported that the deposit cancellation rate was below the long-term average of 13 per cent, with the 5 per cent level in Victoria well below the long-term average. And Mirvac reported a mere 2 per cent default rate on settlements.