3min read
PREVIOUS ARTICLE World shares attempt bounce NEXT ARTICLE Stocks to watch

Consumers are still keen to spendConsumer confidence
Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment fell from 4-year highs in February in response to sharemarket volatility. The index fell by 2.3 per cent to 102.7. A reading above 100 denotes optimism.
Positive time to spend: The measure on whether it was a good time to buy a major household item hit a 16-month high in February. The consumer confidence figures have implications for retailers and other consumer-focussed businesses.
What does it all mean?
Given the gyrations on Wall Street, consumer confidence was always going to soften over the past week. Yesterday, the ANZ-Roy Morgan measure showed a 2.6 per cent fall over the previous week. And the WestpacMelbourne Institute measure shows a 2.3 per cent fall over the past month. The surveys were done around the same time, so no surprises in the softer results.
Still it has to be remembered that confidence levels are still broadly around the best levels seen in four years. The job market continues to improve; housing markets are more settled; the global economy is strengthening; and interest rates are going nowhere. All factors support healthier consumer spending – a result confirmed by shopping centre owner, GPT, in its profit result yesterday. Sales at department stores may be falling but the “mini majors” like Sephora are posting gains in sales together with retail services and homewares.
The rolling average of consumer sentiment has lifted in the past three months, at a time when job markets across the nation have been strengthening. Once Wall Street settles again, confidence will rebound. Certainly businesses report higher confidence and the best business conditions in a decade, so there is clearly something fundamental underpinning the strong results.
Young Aussies, men and city-dwellers all remain positive. Older Aussies, women and rural dwellers are less upbeat. Explaining the differences in sentiment for different groups is a harder task.
What do the figures show?Consumer confidence
The Westpac/Melbourne Institute survey of consumer sentiment fell from 4-year highs in February in response to sharemarket volatility. The index fell by 2.3 per cent to 102.7. A reading above 100 denotes optimism. The survey was conducted from February 5-11.
The current conditions index fell by 1.4 per cent and the expectations index fell by 2.9 per cent.
Four of the five the components of the index fell in February:
– The estimate of family finances compared with a year ago fell by 4.5 per cent;- The estimate of family finances over the next year fell by 3.1 per cent;- Economic conditions over the next 12 months fell by 4.7 per cent;- Economic conditions over the next 5 years fell by 0.7 per cent;- The measure on whether it was a good time to buy a major household item was up by 0.9 per cent.
Housing outlook: A good time to buy a dwelling? The index fell by 2.7 per cent in February after lifting by 6.1 per cent in January to 18-month highs. However, house price expectations rose by 4.8 per cent.
Unemployment expectations: Unemployment expectations fell by 1.8 per cent in February and they are now down by 15.2 per cent over the year.
What is the importance of the economic data?
Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
What are the implications for interest rates and investors?
Aussie men and young people remain optimistic. Aussie women and seniors are consistently less positive. The trends are important in assessing prospects for different retail stores.
Aussies are still keen to spend, a fact that will be highlighted in the profit reporting season for consumer services businesses and non-traditional retail goods outlets.
Interest rates remain solidly on hold. According to the latest Westpac survey, 58 per cent of consumers believe the next move in interest rates is up, down from 61 per cent of respondents in August 2017.
By Craig James, Chief Economist, CommSec