No election bounce for consumer confidence

Weekly consumer confidence; Private sector credit; Dwelling approvals

• The weekly ANZ-Roy Morgan consumer confidence index eased by 0.1 per cent to 90.7 (long-run average since 1990 is 112.4). Consumer views on ‘current financial conditions’ dropped 4.4 per cent last week to a two-year low of -19.3 points. And inflation expectations rose to 5.5 per cent last week, the highest level since April 10, 2022.
• Private sector credit (effectively, outstanding loans) rose by 0.8 per cent in April to be up 8.6 per cent on a year ago, – the strongest annual growth rate in 13½ years (since October 2008).
• Housing credit lifted by 0.6 per cent in April to be up 7.9 per cent when compared to a year ago – the equal strongest annual pace in 11½ years (since July 2010). Business credit lifted 1.4 per cent in April to be up 11.6 per cent over the year – the strongest pace in over 13 years (since November 2008).
• The number of dwelling approvals fell by 2.4 per cent in April to 14,908 units. Approvals are down 32.4 per cent on a year ago. The value of approvals for alterations and additions rose by 6.6 per cent in April to $1,005.8 million.

What does it all mean?

• There was no post-election bounce in consumer confidence for the newly installed Albanese Government. But ANZ economists were quick to point out that, “This is the fifth election since the survey went weekly in 2008, and none has shown a large swing in confidence.”
• The latest survey from ANZ and Roy Morgan showed that consumer confidence was little changed last week, down by 0.1 per cent to 90.7 points. The number of pessimists outweighed the number of optimists, with the index remaining well below the 100-point neutral mark for a 12th consecutive week.
• ANZ economists reported that confidence rose in NSW and was unchanged in Victoria, but was slightly down in Queensland, South Australia and Western Australia.
• Three out of the five confidence sub-indices increased last week. But consumer concerns about rising interest rates combined with elevated petrol, food and electricity prices are dampening sentiment. In fact, inflation expectations rose from 5.3 per cent to 5.5 per cent last week, the highest level since April 10, 2022.
• Consumer views on ‘current financial conditions’ dropped 4.4 per cent last week to a two-year low of -19.3 points. And views on ‘future financial conditions’ dipped by 5.5 per cent.
• That said, sentiment towards the economy and spending intentions both improved. Household views on ‘current economic conditions’ rose by 1.5 per cent last week, while views on ‘future economic conditions’ lifted 3.7 per cent. And when asked whether it is a good ‘time to buy a major household item,’ the spending intentions sub-index jumped 5.4 per cent over the week in a positive development for retailers.
• The latest Reserve Bank (RBA) financial aggregates were issued today. Ahead of expected interest rate hikes and the federal election in May, credit growth momentum was expected to slow in April. But total private sector credit (effectively, outstanding loans) rose by a stronger-than-expected 0.8 per cent last month to be up 8.6 per cent on a year ago – the strongest annual growth rate in 13½ years (since October 2008).
• Over the course of the pandemic, Aussie households and businesses have increased their borrowings, supported by significant policy stimulus. Record low interest rates boosted the housing market, while Aussie businesses borrowed more to invest in response to a strengthening in consumer demand.
• Housing credit lifted by 0.6 per cent in April to be up 7.9 per cent compared to a year ago – the equal strongest annual pace in 11½ years (since July 2010). Owner-occupier housing credit also increased 0.6 per cent in April to be up 9 per cent on a year ago, but below the 9.3 per cent pace in February, which was the equal strongest annual growth rate in 12 years (since October 2009). And investor housing credit rose by 0.6 per cent to be 5.8 per cent higher on a year ago – the strongest annual rate in six years (since January 2016).
• Policymakers are keeping a close eye on elevated household mortgage debt levels and investor lending demand after a big lift in home prices during the pandemic. But the RBA hiked interest rates at the beginning of May and the policy tightening cycle is likely to slow housing market activity. Already, internal Commonwealth Bank (CBA) lending data suggests that demand for new home loans likely fell in April due to rising borrowing costs, affordability constraints and building inflationary pressures.
• Elsewhere, business credit lifted by a robust 1.4 per cent in April to be up 11.6 per cent over the year – the strongest pace in over 13 years (since November 2008). Political uncertainty was expected to weigh on business credit, but solid business conditions and confidence are encouraging Aussie firms to increase their borrowing for investment purposes.
• While the overall pace of total annual credit growth is at 13½-year highs, it is still well below the annual pace of 16.5 per cent recorded in December 2007. We expect credit growth to slow in the second half of 2022 as the RBA continues to hike interest rates, slowing housing demand.
• Building approvals steadied in April after a volatile March quarter. Approvals fell by 2.4 per cent in April after dipping by 19.2 per cent in March, soaring by a record 41.4 per cent in February, and declining by 24.6 per cent in January.
• Omicron-virus related disruptions and summer holidays had affected the ability of council workers, private certifiers and building business staff to process approvals at the beginning of 2022. And fading HomeBuilder stimulus, supply chain snarls, higher building materials costs and labour shortages are weighing on building activity.
• The fall in dwelling approvals was again concentrated in apartments or units (‘multi-unit’ dwellings), down by 6.1 per cent in April, led lower by declines of ‘other approvals’ in both NSW (down 11 per cent) and Queensland (down 31.6 per cent). But approvals for houses rose by 0.5 per cent last month, with increases of 7.4 per cent in South Australia and 6.3 per cent in Queensland.
• The value of total residential building increased by 4.7 per cent in April, driven by a 6.6 per cent lift in alterations and additions and a 4.4 per cent increase in the value of new residential building approved. But the value of commercial approvals plunged 30 per cent, easing after March’s record 115.4 per cent surge.
• During the pandemic, homebuyers favoured detached suburban and regional houses, while rental demand for units in capital cities were affected by border closures to international students. But affordability constraints and the recent easing of Covid-19 government restrictions could yet support demand for apartments and townhouses.
• The pipeline of existing residential home construction remains solid, but downside risks to residential investment are evident. Our view is that the housing cycle will lose momentum over the remainder of the year due to higher building costs, labour shortages, rising mortgage rates, affordability constraints, Covid-related delays and lower inbound migration compared to pre-Covid levels. Already, bankruptcies in the construction sector have increased with builders Probuild and Condev both ‘going under’ in recent months.

What do you need to know?

Consumer sentiment – Week ended May 29

• The weekly ANZ-Roy Morgan consumer confidence index eased by 0.1 per cent to 90.7 (long-run average since 1990 is 112.4). But three out of the five major sub-components rose last week:

Private sector credit – April

• Private sector credit (effectively outstanding loans) rose by 0.8 per cent in April to be up 8.6 per cent on a year ago – the strongest annual growth rate in 13½ years (since October 2008).
• Housing credit lifted by 0.6 per cent in April to be up 7.9 per cent when compared to a year ago – the equal strongest annual pace in 11½ years (since July 2010).
• Owner-occupier housing credit also increased by 0.6 per cent in April to be up 9 per cent on a year ago, below the 9.3 per cent pace in February, which was the equal strongest annual growth rate in 12 years (since October 2009).
• And investor housing credit also rose by 0.6 per cent last month to be 5.8 per cent higher on a year ago – the strongest annual rate in six years (since January 2016).
• Elsewhere, personal credit lifted by 0.3 per cent in April, but is down by 2.8 cent over the year.
• Business credit lifted 1.4 per cent in April to be up 11.6 per cent over the year – the strongest pace in over 13 years (since November 2008).
• The M3 money aggregate lifted by 0.6 per cent in the month to be up 9.6 per cent from a year ago.
• Broad Money rose by 0.5 per cent in April to be up 9.7 per cent from a year ago.

Dwelling approvals – April

• Dwelling approvals fell by 2.4 per cent in April to 14,908 units. Approvals are down 32.4 per cent on a year ago.
• In rolling annual terms, dwelling approvals stood at 208,889 at the end of April, up just 0.6 per cent on the year and 14.2 per cent below all-time highs in August 2016.
• Approvals for private sector houses rose by 0.5 per cent in April, but were down 33.7 per cent on a year ago.
• Private sector dwellings excluding houses (high-density apartments) dropped 6.1 per cent in April to be down 28.7 per cent on a year ago.
• Total dwelling approvals across states in April: NSW (-6.8 per cent); Victoria (+7.8 per cent); Queensland (-4.5 per cent); South Australia (+50.3 per cent); Western Australia (-0.3 per cent); and Tasmania (+10.6 per cent).
• The value of all commercial and residential building approvals fell by 12 per cent in April. Total residential approvals were 4.7 per cent higher with new residential building up 4.4 per cent. And alterations & additions lifted 6.6 per cent, but commercial building plunged by 30 per cent.
• The value of all residential and commercial building approvals fell from $147.6 billion in the year to March to $146.3 billion in the year to April.