Confidence levels lift over past week: CommSec's Savanth Sebastian

GUEST OBSERVER

The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.1% to 113.3 in the week to October 25.

Confidence is down 1% over the year but above the average of 111.4 since 2014. The measure of whether it was a good time to buy a major household item rose to a 3- month high. 

What does it all mean?

Somewhat surprising confidence levels lifted over the past week. There was the perception that the increase in mortgage rates - announced by the major banks last week - would have detrimental impact on confidence, but it seems like households have taken the announced rate hikes in their stride. Other factors including a 1.6% lift in the sharemarket; stabilisation of the Aussie dollar near US72-73 cents; positive testimony on the economy in the Reserve Bank Board minutes all played a role in supporting consumer confidence.

More confident consumers are more likely to spend, but there are no guarantees. But importantly the measure of whether it was a good time to buy a major household item lifted to the highest in three months – a result that bodes well for the upcoming Christmas spending period.

The Reserve Bank is likely to discuss the merits of another rate cut at the November Board meeting. The lift in mortgage rates over the past week is essentially a quasi-tightening on the economy. The national economy continues to improve but a rate cut before Christmas would help to boost activity across the nation

What do the figures show?

Consumer sentiment

The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.1% to 113.3 in the week to October 25. Confidence is down 1% over the year but still above the average of 111.4 since 2014.

Three of the five components of the index fell in the latest week:

The estimate of family finances compared with a year ago was down from +8 to +4;

The estimate of family finances over the next year was unchanged at 25;

Economic conditions over the next 12 months was down from -1 to -3;

Economic conditions over the next 5 years was down from 11 to 10;

The measure of whether it was a good time to buy a major household item was up from +23 points to +31 points.

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. 

Savanth Sebastian is an economist for CommSec.