Outlook for family finances at six year highs: Savanth Sebastian
GUEST OBSERVER
The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.6 points (1.4 percent) to 116.4 in the week to March 13 –the highest reading since November 2015.
Confidence is up 5.1 percent over the year and above the average of 111.4 since 2014.
The estimate of family finances over the next year was up from +28 to +35 – the highest reading since January 2010.
New vehicle sales: New vehicle sales fell by 0.1 percent in seasonally adjusted terms in February to be up by 5.1 percent on the year. Sales of SUVs (418,691) hit record highs in annual terms and accounted for a record 45.1 percent of combined passenger car and SUV sales in the year to February.
Reserve Bank Board in wait and see mode: “Over the period ahead, new information should allow the Board to assess whether the improvement in labour market conditions was continuing and whether the recent financial turbulence presaged weaker global and domestic demand. Members noted that continued low inflation would provide scope to ease monetary policy further, should that be appropriate to lend support to demand”.
The lending and consumer confidence figures have implications for finance providers, retailers, and companies dependent on consumer and business spending. The RBA Board minutes provides insights on the interest rate outlook.
What does it all mean?
The Aussie dollar is holding near US75-76 cents; job security is strong; interest rates are stable; and petrol prices are low. So what’s not to like? Sure the sharemarket has been volatile, but Aussie consumers seem resigned to the fact that is a “normal” situation. And they are looking through the volatility, realising that our economy, and more importantly their finances are in good shape.
The good news for retailers is that consumers are seemingly looking forward to the next year with a healthy level of optimism. The estimate of family finances over the next 12 months has lifted to the highest levels since January 2010 – essentially at the height of the commodity boom. In addition consumers continue to believe it is a good time to buy a car, fridge, washing machine or television. Certainly retailers don’t seem to be in a rush to lift prices, so affordability is good.
It may be that the recent long weekend holiday in a number of states and territories as well as the upcoming Easter long weekend may have artificially boosted the level of euphoria amongst households. However the fundamentals are still sound. No doubt the upbeat economic data over the last few weeks coupled with a stronger Australian dollar is a key factor in supporting sentiment.
There were no surprises in the Reserve Bank Board minutes. The decision to keep interest rates on hold in early March was accompanied by virtually a carbon copy of the statement from the prior month’s RBA Board meeting. And the minutes are essentially singing from the same hymn sheet.
The Reserve Bank minutes make it clear that the focus is likely to be on more timely data over the next couple of months, to gauge how the economy is tracking.
There was no real mention of the Australian dollar. However given that the currency has remained persistently high in the last couple of weeks it may be a topic of conversation in upcoming speeches by Reserve Bank officials.
The data on new vehicle sales merely confirms the industry estimates made by the Federal Chamber of Automotive Industries earlier in the month. The key message is that record car affordability, low interest rates and a stronger job market are serving to drive vehicle sales.
Of note, sports utility vehicles (or four-wheel drive vehicles) remain the ‘new black’. While sales of ‘ordinary’ passenger cars fell by almost 7 percent in February compared with a year ago, SUVs lifted by almost 11 percent over the year. In fact over 418,000 SUVs were sold over the past year – a record high.
One in three new vehicles sold in Australia is a SUV. And almost 45 per cent of combined SUV and passenger cars sold are SUVs.
What do the figures show?
Consumer confidence
The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.6 points (1.4 percent) to 116.4 in the week to March 13. Confidence is up 5.1 percent over the year and above the average of 111.4 since 2014.
Three of the five components of the index rose in the latest week:
The estimate of family finances compared with a year ago was up from +6 to +10;
The estimate of family finances over the next year was up from +28 to +35;
Economic conditions over the next 12 months was down from -1 to -2;
Economic conditions over the next 5 years was down from +10 to +7;
The measure of whether it was a good time to buy a major household item was up from +31 points to +32 points.
New car sales:
According to the Australian Bureau of Statistics (ABS) new vehicle sales fell by 0.1 percent in seasonally adjusted terms in February after rising by 0.4 percent in January. Passenger car sales rose by 0.8 percent, while sales of sports utility vehicles fell by 0.6 percent and sales of “other” vehicles (includes utilities, panel vans, cab chassis, goods carrying vans, rigid trucks, prime movers, non-freight carrying trucks, and buses) fell by 1.1 percent.
New vehicles sales were up by 5.1 percent over the year . Passenger car sales in January were down 6.8 percent over the year while SUVs sales were up by 10.8 percent and “other vehicles” were up by 8.4 percent.
In rolling annual terms, a record 1,163,684 new vehicles were sold over the year to February. Sales of SUVs (418,691) hit record highs in annual terms, while annual sales of other vehicles stood at a 2-year high of 235,112.
Sales of passenger vehicles stood at a 15ó-year low of 509,881.
SUVs accounted for a record 45.1 percent of combined passenger car and SUV sales in the year to February.
Reserve Bank Board minutes
The key quotes from the Board minutes:
International conditions: “Growth in Australia's major trading partners had remained a little below average in year-ended terms and commodity prices were still significantly lower than they had been a year earlier.
Meanwhile, global financial markets had been volatile in the aftermath of the Bank of Japan's decision to implement negative interest rates and generally there appeared to be more uncertainty about the direction and potency of monetary policy in the major jurisdictions. However, given the usual lags in the data, it was still too early to assess whether the bout of financial market volatility since the turn of the year foreshadowed or would lead to a weakening in global economic conditions.”
Job market: “Leading indicators of employment had increased further and were consistent with employment growth in the months ahead. Wage growth had remained at quite low levels.”
Housing: “Conditions in the established housing market had eased somewhat since September 2015, in part reflecting the effect of supervisory measures implemented in that year. In addition, after rising for some time, the growth in aggregate housing credit had stabilised over the past six months or so, with a significant easing in growth in lending to investors.”
Monetary policy: “Members judged that there were reasonable prospects for continued growth in the economy and that it was appropriate to leave the cash rate unchanged at an accommodative setting. Over the period ahead, new information should allow the Board to assess whether the improvement in labour market conditions was continuing and whether the recent financial turbulence presaged weaker global and domestic demand. Members noted that continued low inflation would provide scope to ease monetary policy further, should that be appropriate to lend support to demand.”
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.
The Australian Bureau of Statistics provides seasonally adjusted and trend estimates of industry data. The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
What are the implications for interest rates and investors?
CommSec doesn’t expect any change in the cash rate for the foreseeable future. Underlying inflation remains at the bottom of the 2-3 percent target band but should lift over 2016.
The recent lift in the Australian dollar has already garnered the interest of the Reserve Bank and may dominate discussion at the next Board meeting. Last week Deputy Governor Phillip Lowe said the Reserve Bank would prefer to see the currency lower.
If the Reserve Bank was to cut rates it would be because of global factors – certainly not domestic considerations.
Savanth Sebastian is an economist for CommSec