The wealth effect: rising sharemarket, steady home prices and bonuses boost consumer sentiment: CommSec

Joel RobinsonMay 21, 20180 min read
The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.7 per cent to a 15-week high of 121.6. Confidence is up by 8.4 per cent over the year and above the average of 113.8 since 2014.
Sentiment towards family finances over the past year rose by 2 per cent to a 3-month high of 110.1. And views on whether it is a ‘good time to buy’ a major household item rose by 2.6 per cent to 141.7 over the week.
Consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
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What does it all mean?
Aussie consumers are feeling pretty good about things. Sentiment has increased for six straight weeks. If this momentum continues we’ll be back at the best levels in four years in no time.
But the pessimists are telling us that we aren’t going to get pay rises any time soon, job creation is slowing and that we are all mired in mortgage debt.
So why are Aussies more optimistic? Job security is improving. 332,200 Aussies have been gainfully employed over the past year. Unemployment expectations are at the best levels in seven years. Real wages are still positive with annual wages growth including bonuses at 3-year highs (data released last week).
And there is the small matter of the ‘wealth effect’. The housing market is rebalancing on the east coast of the country. Dwelling prices were down by 3.4 per cent in Sydney over the 12 months to April. But are still up by 87.1 per cent since April 2009. Hobart is going gangbusters and Perth home prices are stabilising.
The Aussie share market (ASX200 index) is up by 1.3 per cent so far this month and 3.3 per cent over the past four weeks (both to May 21). Energy, materials and health care shares collectively have performed well.
Aussie consumers have also reacted positively to the Federal Budget. Tax cuts, albeit modest, may encourage increased spending on household goods, as evidenced by the rebound in sentiment around the question ‘is it a good time to buy a household item?’
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What do the figures show?
Consumer Sentiment
The weekly ANZ/Roy Morgan consumer confidence rating rose for the sixth consecutive week, up by 0.7 per cent to a 15- week high of 121.6. Confidence is up by 8.4 per cent over the year and above the average of 113.8 since 2014.

Four of the five components of the index increased in the latest week:

The estimate of family finances compared with a year ago was up from +7.9 to +10.1;

The estimate of family finances over the next year was up from +27.1 to +27.8;

Economic conditions over the next 12 months was unchanged at +13.2;

Economic conditions over the next 5 years was down from +17.5 to +15.3;

The measure of whether it was a good time to buy a major household item was up from +38.1 to +41.7. The measure of inflation expectations 2 years ahead rose from 4.1 per cent to 4.2 per cent.

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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?

Aussies are a resilient bunch. The number of optimists still outweigh the number of pessimists.

Rising petrol prices, anaemic income growth, elevated household debt and a weaker currency are a combined weight on household budgets. However, this is counterbalanced by improving job security, better bonuses and tax relief for some. Households are still spending.

And according to CoreLogic, Aussie home prices held steady last week. Sydney and Melbourne home prices, especially at the top end of the market, continue to decline. But what about the rest of the country?

Prices in Adelaide and Brisbane have risen modestly over the past year. Hobart continues to benefit from its improving economy and better relative affordability.

Perth home prices are declining, but at a slower pace, signalling a potential bottoming. According to the WA Chamber of Commerce, business confidence is the best in seven years. Profits in the mining sector are rising and job ads are increasing.

And when it comes to share markets, so much for the ‘sell in May and go away’ cliché! While some well-known blue chip companies have underperformed recently, savvy Aussie investors have positioned themselves in stocks with specific positive catalysts, paying decent dividend yields. Corporate profits are at record highs and the Aussie economy is improving.

However, broader inflationary pressures remain fairly benign. Therefore, CommSec expects official interest rates to be stable for the foreseeable future.

Ryan Felsman is a senior economist at CommSec.

Joel Robinson

Joel Robinson is a property journalist based in Sydney. Joel has been writing about the residential real estate market for the last five years, specializing in market trends and the economics and finance behind buying and selling real estate.
Consumer Sentiment
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