Consumer confidence slides to four-year low: CommSec

Consumer confidence slides to four-year low: CommSec
Consumer confidence slides to four-year low: CommSec

EXPERT OBSERVER

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.8 per cent to a 4-year low of 106.8 points. Sentiment is below both the average of 114.3 points held since 2014 and longer term average of 113.1 points since 1990.

Consumer views on the economic outlook over the next 5 years are the most pessimistic since the weekly survey commenced in August 2008.

The Reserve Bank Deputy Governor delivered a speech: “Employment and Wages”

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.

Consumer confidence slides to four-year low: CommSec

What does it all mean?

- This would worry the Reserve Bank. Consumer sentiment is at 4-year lows, however it is hard to find catalysts for either the sharp drop in the past week or the weakness over the past months. Interest rates are steady; the sharemarket is edging closer to record highs; there is continuing optimism about a US-China trade deal; and the Aussie dollar has been reasonably steady in a US67-69 cent range.

- While not a factor affecting personal finances or the economy in a broader sense, the bushfires would have been a factor generally affecting consumer mood over the past week. Then there is the on-going drought. The sharp increases in petrol prices in eastern and southern mainland capital cities would also certainly be making people more apprehensive. And consumers always prefer a stronger Aussie dollar to a weaker currency.

- Aussies are at risk of talking themselves into an economic downturn. And when you review the evidence there is no justification for pessimism. Inflation is low, tax cuts are flowing, the budget is balanced, the trade surplus is at record highs and record low interest rates are driving down borrowing costs.

But most consumers seem to be sending a message that interest rates are low enough and don’t need to go further. The Reserve Bank has seemingly got the message that rate cuts are bad for confidence: at the last meeting the Board “recognised the negative effects of lower interest rates on savers and confidence.”

- All eyes will now be focussed on the Reserve Bank Governor’s speech tonight. Governor Lowe would be best to turn the speech into a ‘pep talk’ and rule out new special initiatives to drive the economy. Most people just want to know that rates will remain low for an extended period.

- Reserve Bank Deputy Governor Guy Debelle expects annual wage growth to persist in the 2s (2.0-2.9 per cent). Encouragingly he says: “I don't think there is much risk in the period ahead that aggregate wages growth will move any lower.”

- But the Reserve Bank is not expecting much of a lift in wages either: “What we know from our liaison program is that the proportion of firms expecting stable wages growth in the year ahead is around 80 per cent and only around 10 per cent anticipate stronger wages growth.”

- The Deputy Governor also said “The Bank is trying to understand what has been driving these macro developments using some newly available micro data sources. This greater understanding should help inform our outlook for the labour market.”

What do the figures show? 

Consumer Sentiment

- The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.8 per cent to 106.8 points. It was the biggest weekly fall in two months. Sentiment is below both the average of 114.3 points held since 2014 and the longer term average of 113.1 points held since 1990. 

All of the five major components of the index fell last week:

- The estimate of family finances compared with a year ago was down from +10.9 points to +10.8 points; 

- The estimate of family finances over the next year was down from +25.8 points to +20.3 points;

- Economic conditions over the next 12 months was down from -9.4 points to -10.6 points;

Consumer confidence slides to four-year low: CommSec

- Economic conditions over the next 5 years was down from +0.8 points to -3.8 points; 

- The measure of whether it was a good time to buy a major household item was down from +21.1 points to +17.1 points. 

- The measure of inflation expectations was steady at 3.8 per cent. 

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?

- The Reserve Bank can cut rates again. The question is whether it should cut rates again. The promise of an extended period of record low rates may serve a better purpose.

- The Federal Government is well placed to provide stimulus to the economy. But the measures applied must directly boost business activity and consumer spending rather than just encourage or influence actions.

- The latest consumer confidence data offers no joy for retailers. Retailers must work extra hard to secure the affection of consumers. Good deals at the Black Friday and Cyber Monday sales would help.

- Also downbeat for retailers, this from the Reserve Bank Deputy Governor: “surveys suggest that promotions can be a key source of earnings growth for individuals. On average, a promotion leads to a 5 per cent boost in hourly wages, which is comparable to the wage rise a worker gets when switching firms. Since 2012, there has been a broad-based decline in the proportion of employees that are getting promoted at work or switching jobs. This means that a smaller fraction of the workforce are receiving these wage rises.

CRAIG JAMES is the Chief Economist at CommSec.

 

 

 

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Economy Commsec

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