Consumer views on household purchases hit decade low

From

Consumer sentiment

  •  Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.7 per cent to 110.1 points, up from 2-year lows of 109.3 points in the previous week. But sentiment remains below the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.
  • Households shun major purchases: The measure of whether it was a ‘good time to buy a major household item’ fell by 3.8 per cent to 18.0 points – the lowest level since May 23 2009.

The consumer confidence figures have implications for retailers and other consumer-focussed businesses.

What does it all mean?

  • Consumer confidence edged higher last week, but will provide policymakers with little comfort. Worryingly, the measure of whether it was a ‘good time to buy a major household item’ fell to its lowest level in over a decade. The measure is seen as a critical leading indicator of future consumer spending intentions. The drop is particularly concerning as mortgage rates have been cut to around 50-year lows and tax offset payments have started to hit consumers’ bank accounts.
  • Recent comments from retail powerhouse Premier Investments’ CEO Mark McInnes will be ringing in Reserve Bank Governor Philip Lowe’s ears as delivers his ‘Economic Update’ speech in Armidale tonight. Following the release of Premier’s earnings results on Friday, Mr McInnes said that “macro conditions are still quite difficult – it doesn’t feel there’s buoyancy. But you’d have to say at some point in time people will stop saving and start spending – we haven’t seen that yet but hopefully that will be a future tailwind for us.” (Source: Australian Financial Review, September 20 2019).
  • So why are Aussie consumers so pessimistic? The lift in the jobless rate – released last Thursday – to 13-month highs of 5.3 per cent in August will cause unease. While unemployment is still low in New South Wales, Victoria and the ACT (all below 5 per cent), the jobless rate has increased to over 6 per cent in Queensland, Tasmania and South Australia.
  • And with workforce participation at record highs and population growth still-solid, there is little prospect of a material lift in worker’s pay packets, given increased spare capacity in the labour market. Therefore, combined job insecurity, elevated mortgage debt and tepid wages growth are behind consumer caution.
  • It is hoped that the positive ‘wealth’ effect from rising property prices and an Aussie sharemarket straddling record highs, will eventually lift the mood of consumers, boosting spending.
  • Interestingly, consumers’ inflation expectations lifted last week, coinciding with the increase in unleaded petrol and diesel  prices. Higher wholesale prices and rising imported gasoline prices point to higher unleaded petrol prices ahead, subject to the retail discounting cycle movements.

What do the figures show?

Consumer Sentiment

  • The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.7 per cent to 110.1 points. Consumer sentiment is below the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.
  • Four out of the five major components of the index rose last week:
    • The estimate of family finances compared with a year ago was up from +6.6 points to +8.6 points;
    • The estimate of family finances over the next year was up from +22.3 points to +24.3 points;
    • Economic conditions over the next 12 months was up from -6.5 points to -3.1 points;
    • Economic conditions over the next 5 years was up from +1.7 points to +2.7 points;
    • The measure of whether it was a good time to buy a major household item was down from +22.6 points to +18.0 points – the lowest level since May 2009.
  • The measure of inflation expectations rose from 3.9 per cent to 4.1 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.

What are the implications for interest rates and investors?

  • All eyes will be fixed on Reserve Bank Governor Philip Lowe’s ‘Economic Update’ in Armidale at 8.05pm AEST. We expect the Governor’s speech to lay the groundwork for additional policy easing on Tuesday week.
  • Previous interest rate cuts were well telegraphed and additional remarks were provided after monetary policy decisions as part of the Bank’s ‘forward guidance’ communication strategy. Dr. Lowe is also scheduled to provide commentary at a Board dinner with the Melbourne business community at 7.20pm AEST on October 1.
  • Conditions remain difficult for Aussie retailers. Those at the top of their game – like Premier Investments and JB HiFi – are navigating the challenging macroeconomic landscape by appealing to consumers through their appealing store offerings, superior product offerings, cost control focus and unique marketing strategies.
  • The Commonwealth Bank’s most recent Household Spending Intentions measure, based on a sample of more than 2½ million households combined with relevant search information from Google Trends, indicates $7.5 billion worth of tax rebates are being spent. Such an outcome would be applauded by policymakers. But risk averse households may still use the opportunity to also pay down debt.
  • As such, the August Retail trade data released on October 4 takes on increased importance. However, we think this outturn will come too late for the Reserve Bank, despite the recent improvement in Aussie economic data releases – as shown by the Citi Surprise Index (above).
  • Commonwealth Bank Group economists expect a rate cut on October 1 and a follow up rate cut on February 4 2020.

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