Confident consumers; Luxury cars retreatNew vehicle sales; Consumer sentiment
Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.2 per cent to 123.5 last week – the highest level in four years and well above the long-run monthly average of 112.9. The reading on personal finances is the second highest in nine years of records.
New vehicle sales: The Australian Bureau of Statistics (ABS) reported that new vehicle sales rose by 4.5 per cent in seasonally-adjusted terms in December. Vehicle sales were at record highs in 2017.
Luxury vehicles: The CommSec index of luxury marques show that sales totalled 100,553 in 2017, down from the record high of 106,658 in 2016.
Car affordability: The CommSec measure shows that car affordability has never been better. A worker on the average wage needs just 23.2 weeks of wages to buy a Ford Falcon, down from 26.7 weeks of wages, five years ago. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The vehicle sales data provides guidance on consumer spending as well as conditions for the Autos and Components sector of the sharemarket.
What does it all mean?
• The Aussie dollar is up and the bad news stories are staying away and all of a sudden Aussie consumers are in good spirits. In fact, it is seen as the best environment to buy a major household item like a TV, washing machine or car in 4½ years. The lift in sentiment is certainly great news for retailers.
• The gloomsters reckon that low wage growth is holding back consumers. Certainly for many, 2 per cent wage growth required some adjustment after years of 3-4 per cent annual wage growth. But more people are realising that prices are growing at a slower rate than wages or are even going backward. Affordability continues to improve. And jobs growth is the best in 12 years.
• When luxury car sales are in retreat you can bet that home prices aren’t far behind. And indeed that’s the case. Annual sales of luxury marques started falling in early 2017 and home prices started to soften around mid-year, culminating in the 0.3 per cent fall in December.
• Vehicle sales are still rising – in fact 2017 was a record year. But tastes have changed. Sports Utility Vehicles (SUVs) and utes are in demand rather than ordinary sedans.
What do the figures show?
Consumer sentiment
• The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.2 per cent to 123.5 – the highest level in four years. It was the sixth gain in eight weeks. Confidence is up by 5.6 per cent over the year and well above the average of 113.3 since 2014 and average of 112.9 since 1990.
• 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 +12.9 to +15.2;
The estimate of family finances over the next year was down from +29.3 to +29.0;
Economic conditions over the next 12 months was up from +13.7 to +15.3;
Economic conditions over the next 5 years was down from +15.2 to +14.6;
The measure of whether it was a good time to buy a major household item rose from +38.6 to a 4-½ year high of +43.3.
• The measure of inflation expectations 2 years ahead rose from 4.3 per cent to a 10-month high of 4.7 per cent.
New vehicle sales
• According to the Australian Bureau of Statistics (ABS), new vehicle sales rose by 4.5 per cent in seasonally adjusted terms in December – the biggest rise in 5½ years. Passenger car sales fell 0.1 per cent and sales of SUVs rose by 7.2 per cent. Sales of “other” vehicles (includes utilities, panel vans, cab chassis, goods carrying vans, rigid trucks, prime movers, non-freight carrying trucks, and buses) rose by 7.2 per cent.
• Across states & territories in December: NSW (up 3.5 per cent); Victoria (up 11.0 per cent); Queensland (up 0.4 per cent); South Australia (up 5.6 per cent); Western Australia (down 3.1 per cent); Tasmania (up 5.8 per cent); Northern Territory (up 0.1 per cent); ACT (down 0.6 per cent).
• New vehicle sales are up by 6.7 per cent over the year. Passenger car sales are down by 11.0 per cent, while SUVs sales are up 19.3 per cent and “other” vehicles are up by 19.8 per cent.
• In rolling annual terms, a record 1,189,116 new vehicles were sold over the year to December. Sales of SUVs (465,646) and “other” vehicles (273,458) both rose to fresh record highs. Sales of passenger vehicles, however, fell to a 24½-year low of 450,012 in the year to December. 
CommSec Luxury Vehicle Sales
• CommSec tracks the sales of 17 luxury marques: Aston Martin, Audi, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, McLaren, Maserati, Maybach, Mercedes-Benz, Morgan, Porsche, and Rolls Royce.
• In 2017, sales of luxury marques totalled 100,553, down 5.7 per cent on a year earlier – the biggest annual decline in eight years. Luxury cars & SUVs represent 11 per cent of the combined car & SUV market, down from a high of 11.5 per cent.
• While sales of most marques have softened, sales of both Maseratis and Ferrari hit record highs in the year to December 2017.
CommSec Car Affordability
• CommSec maintains various measures of car affordability, measuring prices of same or similar models over time as well as tracing wages. Car affordability has never been better – and in fact it is even better in that no adjustment has been made for the improving quality and inclusions of vehicles over time.
• A worker on the average wage needs just 23.2 weeks of wages to buy a Ford Falcon, down from 26.7 weeks of wages, five years ago.
• A worker on the average wage needs just 21.4 weeks of wages to buy a Holden Commodore. At its best levels in 1975 it would have taken a worker on the average wage, 23.2 weeks of wages to buy a new Holden Kingswood Sedan.
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.
What are the implications for interest rates and investors?
• Consumers are happy because they are adjusting to the new realities. Wages are more likely to grow 2-3 per cent a year, not 3-4 per cent. And that’s OK, as long as prices of goods and services grow by less than 2 per cent a year. And jobs growth remains strong. Did you know that consumers believe their finances are in close to the strongest shape in over nine years?
• Consumers also love it when the Aussie dollar is going up. Think cheaper overseas travel and more overseas goods purchased on the internet.
• Aussies are checking their purchases of luxury vehicles and that means they are also checking their purchases of other assets like homes. Tracking the purchases of luxury vehicles may provide some insight into where home prices go in 2018.
• CommSec expects interest rate stability through to late 2018.
Originally published by Craig James, Chief Economist, CommSec