- Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment fell by 3 per cent in July to 99.9 after falling by 1 per cent in June. But still the confidence index is up 8.4 per cent on a year ago. The survey was conducted July 4th-7th.
What does it all mean & what are the implications?
The latest fall in consumer confidence highlights the slight level of cautiousness in the midst of the uncertain Federal Election outcome.
The monthly consumer confidence survey was conducted from July 4th-7th - the week following the Federal Election. Overall the monthly results mirror the weekly Roy Morgan consumer sentiment survey. Both surveys ask the same type of questions and sample sizes are about the same.
The bottom line? Consumers are feeling OK at present – not euphoric or pessimistic. Still with petrol prices sliding, a stronger Aussie dollar and the economy performing well, the assessment of the collective consumer psyche in Australia makes sense. The strength in the labour market is also a positive and likely to drive spending in the midterm.
Looking forward retailers will find conditions a little soft and may need to discount in the near term (to boost foot traffic) but it is likely that the worst is behind. The other good news is that it is looking more likely that the Reserve Bank Board will be cutting rates in the second half of 2016. Interest rates are well and truly stimulatory but given the lack of inflation across the economy the Reserve Bank has another opportunity to provide a degree of stimulus.
What do the figures show?
- The Westpac/Melbourne Institute index of consumer confidence fell by 3 per cent in July to 99.9 after falling by 1 per cent in June. But still the confidence index is up 8.4 per cent on a year ago.
- The current conditions index fell by 3.1 per cent while the expectations index fell by 2.9 per cent.
- Four of the five components of the index fell in July:
- The estimate of family finances compared with a year ago was down by 5.2 per cent;
- The estimate of family finances over the next year was down by 2.7 per cent;
- Economic conditions over the next 12 months was down by 6.1 per cent;
- Economic conditions over the next 5 years was up by 0.1 per cent;
- The measure on whether it was a good time to buy a major household item was down by 1.5 per cent.
- Gender & demographics: Men (index reading of 102.6, down 0.9 per cent) were still more optimistic than Women 95.8, down 5 per cent). The sentiment index for young people fell by 2.9 per cent to 108.7 in July. Across the other demographics: 25-44 years (index 101.8, down by 4.8 per cent); 45 years plus (index 95.0, down 1.7 per cent).
- Housing outlook: A good time to buy a dwelling index down 1.8 per cent in the month and up 7.4 per cent on the year.
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.
What are the implications for interest rates and investors?
The generational low interest rates will be supportive of further borrowing – but there is no guarantee. While Reserve Bank policymakers would be hoping that the latest rate cut spurs another round of activity, they would be well aware that borrowers are cautious about taking on more debt. And lower interest rates compress bank margins, affecting profits and potentially investment, employment and shareholder returns.
Banks will have to work increasing hard to get consumers and businesses to take on new debt obligations. The tough business conditions will restrain margins and profitability.