Aussie finances in best shape for 7 years: CommSec's Craig James

Aussie finances in best shape for 7 years: CommSec's Craig James
Aussie finances in best shape for 7 years: CommSec's Craig James

GUEST OBSERVER

Consumer confidence: The ANZ/Roy Morgan consumer confidence rating rose by 4.4 percent to 120.6 in the week to September 25.

It was the biggest weekly gain in 11 months and the confidence reading is well above the average of 112.6 since 2014.

Finances healthy: The estimate of family finances compared with a year ago has hit the highest levels in seven years.

What does it all mean?

Just like other financial commentators and analysts, the Reserve Bank takes an interest in the regular readings of consumer confidence. Roy Morgan and ANZ compile a weekly index and the Melbourne Institute and Westpac produce a monthly confidence measure.

But from the Reserve Bank’s point of view, the questions posed on family finances are the most revealing. Clearly if consumers believe that their finances are in good shape, and are expected to stay that way, then they are far more likely to spend.

So it is important that the latest survey shows the current state of family finances at the best levels in seven years. Or expressed another way, finances are the best since the global financial crisis. Expectations of another rate cut have been receding and the latest consumer confidence readings will reinforce that trend.

The consumer survey is clearly great news for any business dependent on consumer spending, especially the more discretionary or non-essential purchases.

What do figures show?

Consumer confidence

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Aussie finances in best shape for 7 years: CommSec's Craig James

The ANZ/Roy Morgan consumer confidence rating rose by 4.4 percent (5.1 points) to 120.6 in the week to September 25. Confidence is up 9 percent over the year and well above the average of 112.6 since 2014. All five components of the index rose in the latest week:

  • The estimate of family finances compared with a year ago was up from +10 to +16;

  • The estimate of family finances over the next year was up from +25 to +30;

  • Economic conditions over the next 12 months was up from +1 to +6;

  • Economic conditions over the next 5 years was up from +9 to +12;

  • The measure of whether it was a good time to buy a major household item was up from +33 points to +39 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.

What are the implications for interest rates and investors?

Consumer confidence is clearly healthy and is supporting a lift in spending - a result that was largely confirmed in the August Commonwealth Bank Business Sales Index, a gauge of economy-wide spending.

More confident consumers are more likely to spend – although there are no guarantees.

While we haven’t yet ruled out a November rate cut, much will depend on the inflation readings released in late October.

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Aussie finances in best shape for 7 years: CommSec's Craig James

Craig James is the chief economist at CommSec.

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