Fluky winds for Aussie consumers: Craig James

Fluky winds for Aussie consumers: Craig James
Fluky winds for Aussie consumers: Craig James


The weekly ANZ/Roy Morgan consumer confidence rating fell by 4.4 percent in the past week from six-week highs.

The Performance of Construction index rose by 5.4 points to 53.1 in February. 

To say that consumer confidence is somewhat fluky at present is probably an under-statement. In late February, consumer confidence was at six-week highs and up 7 percent over the year. A week later and confidence is back down, and almost 1 per cent lower than a year ago.

Domestic politics, Donald Trump, petrol prices, interest rate expectations and a lower Australian dollar are all influencing consumer sentiment. It is a little surprising given that economic data and company earnings results have been very good, but confidence has presumably softened in the past week. It is hard to read much into it. Expect the sideways trend for confidence to continue.

The construction gauge can be volatile. And that is understandable given that engineering and housing activity have tended to move in opposite directions in recent times. And clearly construction activity varies markedly from state to state. Still, it is encouraging that manufacturing and construction gauges are both above 50, signifying expansion.

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Fluky winds for Aussie consumers: Craig James

What do the figures show?

Consumer sentiment

The weekly ANZ/Roy Morgan consumer confidence rating fell by 5.2 points (4.4 percent) to 113.9 in the week to March 5. Confidence is down 0.8 percent over the year but above the average of 113.3 since 2014. 

Only one component of the index rose in the latest week:
  •  The estimate of family finances compared with a year ago was down from +11 to +1;
  •  The estimate of family finances over the next year was down from +34 to +26;
  •  Economic conditions over the next 12 months was up from +5 to +6;
  •  Economic conditions over the next 5 years was down from +7 to +6;
  •  The measure of whether it was a good time to buy a major household item was down from +40 to +31:

  The reading of inflation expectations two years ahead fell from 4.7 per cent to 4.4 per cent. But inflation expectations have now held above 4 per cent for the past 12 weeks.

Performance of Construction

Following four months of decline, the Ai Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®) lifted by 5.4 points to 53.1 in February. It was the highest Australian PCI® reading since mid-2016 (readings below 50 indicate contraction in activity, with the distance from 50 indicating the strength of the decrease).

While apartment building activity contracted for a sixth consecutive month (down 0.4 points to 46.1), house building recorded a strong resurgence (up 10.7 points to 60.9 – its highest rate since June 2016).

Stronger conditions were also evident in commercial (up 6.1 points to 53.6) and engineering construction (up 11.1 points to 53.9), with both sub-sectors lifting into positive territory after declines of five and four months respectively.

Pressure from rising wages (up 2.8 points to 63.0) and input prices (up 10.5 points to 76.1) is partially being passed on, with the selling prices sub-index increasing slightly by 0.7 points to 56.0, but profit margins remain under pressure amid a highly competitive tender pricing environment. “

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 Industry Group and Housing Industry Association release the Performance of Construction Index (PCI) each month. The PCI is useful not just in showing how the construction sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.

What are the implications for interest rates and investors?

The Reserve Bank monitors consumer confidence but it is unlikely that it is taking away much of consequence at present. But the construction data was positive, adding to similar trends for other indicators on the economy.

The Reserve Bank will maintain a “neutral stance”. It is still too early to talk of rate hikes.
Watch the inflationary trends in construction – especially home building. 

Craig James is the chief economist at CommSec. 

Craig James

Craig James

Craig James is the Chief Economist at CommSec, interpreting ‘big picture’ economic and financial trends.

Housing Market Construction Activity

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