• Consumer sentiment: The Westpac/Melbourne Institute index of consumer confidence fell by 0.1 per cent in July. Three of the five components of the index fell in July. The index is up 3.0 per cent over the year to July.
• Confidence was mixed across states: Consumer confidence recorded healthy gains in NSW and South Australia but fell sharply in Queensland, Western Australia and was mildly weaker in Victoria.
• Weaker Chinese trade data: China reported a healthy trade surplus of $27.13 billion in June, however both exports and imports were weaker than forecasts.

What does it all mean?

• The national consumer confidence index remains in optimistic territory but it is clear that consumers remain cautious about the economic outlook – particularly across the mining states. Respondents in Queensland were decidedly pessimistic while there was a sharp pullback in confidence levels in Western Australia. It seems that the cost-cutting measures across the mining sector coupled with the pullback of mining investment starting to filter through the wider community.
• Interestingly respondent views on whether it was a good time to buy a major household item remains well and truly in positive territory. However while consumers may believe that the retail landscape looks attractive, it doesn’t seem like they are being enticed to go out and spend. Last week’s retail data highlighted that non-food spending was growing by a paltry 0.9 per cent over the year to May – the weakest result in over three years.
• Overall confidence levels are okay and have ironically held in optimistic territory for the past two months, despite the surge in fuel prices, sliding Aussie dollar and sharemarket volatility. All three factors would generally make households a little bit more despondent about life. The key defining factor that could have supported confidence levels was the Reserve Bank decision to leave interest rates unchanged over the past two months.
• What is clear is that the Australian economy has changed. Cutting interest rates from 6 per cent down to 5 per cent provides a significant benefit across the economy, however when rates are cut from already super low levels to 53 year lows, it does send the message that there may be something wrong with the health of the domestic landscape.
• The Chinese trade accounts recorded a healthy surplus in June. However the concern lies with the surprising contraction in exports and imports. Chinese exports contracted at the fastest pace in almost four years while imports were also weaker. It is difficult to get a proper read on China but the tightening of credit in the last couple of months may shave slowed down growth and can potentially hurt asset prices. The one positive is that inflation remains well contained, and if growth does slow considerably, policymakers have the option of stimulating the economy.

What do the figures show?

Consumer sentiment:

• The estimate of family finances compared with a year ago fell by 5.6 per cent;
• The estimate of family finances over the next year fell by 2.7 per cent;
• Economic conditions over the next 12 months rose by 0.8 per cent;
• Economic conditions over the next 5 years rose by 9.2 per cent;
• The measure on whether it was a good time to buy a major household item fell by 1.7 per cent.

Consumer confidence across states: NSW 107.8 (up 5.3 per cent); Victoria 102.0 (down 2.0 per cent); Queensland 89.5 (down 7.0 per cent); Western Australia 105 (down 6.4 per cent); South Australia 101.3 (up 2.0 per cent).
Gender & demographics: Men (index reading of 99.4, down 5.9 per cent) were modestly pessimistic. Women (104.8, up 5.9 per cent). Young people (18-24 years) were more pessimistic in July (index down 14.5 per cent to 123.6). Across the other demographics: 25-44 years, (index 104.0, down 3.2 per cent); 45 years plus (index 97.1, up 5.5 per cent).
By home ownership status: Confidence amongst tenants fell by 20.4 per cent; confidence by those who own their homes was up 1.9 per cent; while confidence levels by those paying off home loans rose by 6.6 per cent.

Chinese trade

• The Chinese trade accounts recorded a $27.13 billion surplus (forecast was for a surplus of $27.80 billion) in June. Exports fell by 3.1 per cent in the year to June (forecast +3.7 per cent) while imports fell by 0.7 per cent (forecast, +6.0 per cent).
• Over the year to June the trade surplus was US$272 billion, easing further away from the four-year high of $281.3 billion in the year to February.
• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
• China’s Customs Office releases trade data around the 10^th of each month. China is the world’s second largest economy and Australia’s largest trading partner. Changes in the Chinese economy have major implications for the global and Aussie economy, exchange rates and interest rates.
• The Reserve Bank remains poised to cut rates. There are plenty of good reasons for Aussies to be encouraged by the state of their economy, but it is likely that the weaker Aussie dollar, higher fuel prices and volatile share markets will dominate sentiment – particularly in the lead up to the election.
• CommSec expects the Reserve Bank to maintain its easing bias with a further rate cut pencilled in for August.

What is the importance of the economic data?

• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
• China’s Customs Office releases trade data around the 10^th of each month. China is the world’s second largest economy and Australia’s largest trading partner. Changes in the Chinese economy have major implications for the global and Aussie economy, exchange rates and interest rates.

What are the implications for interest rates and investors?

• The Reserve Bank remains poised to cut rates. There are plenty of good reasons for Aussies to be encouraged by the state of their economy, but it is likely that the weaker Aussie dollar, higher fuel prices and volatile share markets will dominate sentiment – particularly in the lead up to the election.
• CommSec expects the Reserve Bank to maintain its easing bias with a further rate cut pencilled in for August.