Family finances in good shape.
Consumer sentiment; Purchasing managers survey
- Consumer confidence: The ANZ-Roy Morgan consumer confidence rating rose by 0.8 per cent to a 7-week high of 118.1 in the past week. The index is comfortably above the average of 114.1 held since 2014, and above the longer term average of 113.0 held since 1990.
- Family finances: The estimate of family finances compared with a year ago stands at 8-month highs.
- Manufacturing survey: The Commonwealth Bank/Markit purchasing managers survey for manufacturing rose from 53.2 to 54.0 in September. The index is above 50 points, suggesting expansion of the sector.
The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
What does it all mean?
- In the past five weeks consumer confidence has zig-zagged – rising one week and falling the next. But importantly the index of consumer confidence remains solidly above longer-term averages as do most of the components of the survey.
- Positive influences on consumer confidence include the strong job market, high dividend payments by listed companies and stabilisation of the political climate. Negatives include a softer Australian dollar, global trade jitters, falling home prices in some regions and high petrol prices.
- The good news is that Aussie consumers are still looking at their finances and concluding that they are in better shape than a year ago. In fact the measure of family finances compared with a year ago is at 8-month highs. The index showing the outlook for family finances over the coming year also remains above longer-term averages.
- The latest CBA/Markit survey of manufacturing confirms that the sector remains in good shape.
What do the figures show?
Consumer Sentiment
- The ANZ-Roy Morgan consumer confidence rating rose by 0.8 per cent to a 7-week high of 118.1 in the past week. The index is comfortably above the average of 114.1 held since 2014, and above the longer term average of 113.0 held since 1990.
- Four of the five components of the index rose last week:
- The estimate of family finances compared with a year ago was up from +11.6 to +12.4;
- The estimate of family finances over the next year was down from +28.7 to +27.2;
- Economic conditions over the next 12 months was up from +6.0 to +8.2;
- Economic conditions over the next 5 years was up from +11.8 to +13.3;
- The measure of whether it was a good time to buy a major household item was up from +27.8 to +29.4.
- The measure of inflation expectations rose from 4.2 per cent to 4.4 per cent.
Manufacturing Purchasing Managers’ Index
- The CBA/Markit purchasing managers index (PMI) rose from 53.2 points to 54.0 points in September. The index is solidly above 50 points, suggesting expansion of the sector.
- CBA noted: “The September PMI reading was a healthy result for manufacturing activity. PMI readings have climbed higher over the past two months despite global concerns emanating from US trade policy.”
- “Output has accelerated over the September quarter and the trend is encouraging. The slowdown in hiring looks like a natural response to the big lift in employment earlier in the year. The lower AUD continues to put upward pressure on input costs, as do rising new material costs. But firms have been able to lift output prices in response which indicates robust aggregate demand.”
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 Industry Group compile the Performance of Manufacturing Index and Performance of Services index each month. CBA and Markit also compile purchasing manager surveys for manufacturing and services sectors. The surveys are amongst the timeliest economic indicators released in Australia. The surveys are useful not just in showing how key sectors are performing but also in providing some sense about where they are headed. The key ‘forward looking’ components are orders and employment.
What are the implications for interest rates and investors?
- CommSec expects stable cash rates until 2019.
- It’s interesting that consumer views on inflation haven’t really budged over the past two years – inflation expectations are still averaging around 4.3-4.4 per cent, well above the actual rate of 2.1 per cent. What will it take for people to downwardly revise their inflation views?
- Retailers are operating in interesting times. The job market is strong but petrol prices are rising.
