Happy consumers; Good business conditionsConsumer sentiment; Lending Finance; NAB survey
Consumer sentiment: The ANZ-Roy Morgan consumer confidence rating rose by 2.6 per cent to 119.8 in the past week. The index equals a 4-month high and is above both the average of 114.2 held since 2014 and the longer-term average of 113.0 held since 1990.
Business conditions: The NAB business conditions index eased from +14 points to +12 points in October. Business confidence fell from +6 points to +4 points. Thirty-percent of firms say that business conditions are “good” or “very good”.
Lending finance: Total new lending commitments (housing, personal, commercial and lease finance) rose by 3.6 per cent in September to a 10-month high of $71.8 billion.
What does it all mean?
Last week, petrol prices fell sharply, shares rose and the Aussie dollar consolidated near US72 cents. The Reserve Bank was upbeat on economic prospects. And prices of regularly-purchased goods remained low. So, there was plenty for consumers to like. Aussie consumer confidence ebbs and flows each week, but overall, confidence levels are solidly above longer-term averages. More confident consumers – relatively secure in their jobs – are more likely to spend, meaning good news for retailers. The reading on family finances has equalled the highest result recorded in the past two years.
Business conditions remain solid. However business owners are guarded about the future, no doubt reflecting uncertainties about the US-China trade dispute, the outlook for the oil price, Australian home prices and domestic politics.
The area to watch is the job market. The latest business survey shows the job market to be tight with more firms reporting that the difficulty of finding and retaining staff isconstraining business activity.
What do the figures show?Consumer Sentiment
The ANZ-Roy Morgan consumer confidence rating rose by 2.6 per cent to 119.8 in the past week. The index is above both the average of 114.2 held since 2014 and the longer-term average of 113.0 held since 1990.
Four out of five major components of the index increased last week:
The estimate of family finances compared with a year ago was up from +10.9 to +15.2;
The estimate of family finances over the next year was up from +24.7 to +27.5;
Economic conditions over the next 12 months was up from +4.4 to 11.7;
Economic conditions over the next 5 years was up from +10.1 to +15.1;
The measure of whether it was a good time to buy a major household item was down from +33.7 to +29.5.
The measure of inflation expectations rose from 4.1 per cent to 4.3 per cent.
National Australia Bank Business Survey
The NAB business conditions index eased from +14 points to +12 points in October. The long-term average is +6.0 points.
Business confidence fell from +6 points to +4 points in October. The long-term average is +5.8 points.
The survey was undertaken from October 25 to 31.
The rolling annual average business conditions index fell from +17.0 points to +16.4 points in October and was mdestly below the record high of +17.3 points in June.
Components: the index of trading conditions rose from +17 points to +18 points; employment fell from +11 points to +7 points; profitability fell from +14 points to +12 points; forward orders were unchanged at +3 points; stocks were unchanged at +1 points; exports rose from zero to +3 points.
Inflationary indicators: The monthly reading of labour costs rose at a 0.8 per cent quarterly rate in October after a 0.9 per cent rise in September. Purchase costs rose at a 1.1 per cent quarterly rate in October after a 0.6 per cent rise in September. Final product prices rose at a 0.6 per cent quarterly rate, up from +0.4 per cent. Retailprices rose at a 0.2 per cent quarterly pace after falling 0.1 per cent in September.
Capacity utilisation fell from 82.1 per cent to 81.8 per cent in October, but remains above the long-term average of 81.1 per cent.
The proportion of firms reporting that they did not require credit eased from 78 per cent to 72 per cent.
NAB reported: “By industry, the difficulty in finding suitable labour – relative to historical averages – is highest in mining, followed by recreational & personal services. Construction, manufacturing and retail also report a relatively high degree of tightness at present. While wholesale, transport & utilities and finance, business & property services also report above average difficulty in finding suitable labour, they do not appear as constrainedas other industries.”
“The decline in conditions was broad-based across industries with the exception of construction, wholesale and transport & utilities. In trend terms, conditions remained highest in mining, finance, business & property services, construction and manufacturing. Retail – already the weakest across all industries – weakened further in the month and remains the only industry to report deteriorating conditions.”
Lending Finance
Total new lending commitments (housing, personal, commercial and lease finance) rose by 3.6 per cent in September to a 10-month high of $71.8 billion. Lending is up 6.9 per cent on the year. In trend terms, lending rose for the fifth month, up by 0.8 per cent.
Housing finance: The total value of owner occupied housing commitments excluding alterations and additions fell 1.2 per cent in trend terms and the seasonally adjusted series fell 4.2 per cent.
Alterations & additions lending fell for the fourth straight month in seasonally adjusted terms, down 0.6 per cent in September to 17-year lows.
Personal finance commitments: The seasonally adjusted series for the value of total personal finance commitments fell 0.2 per cent. Revolving credit commitments fell 3.4 per cent and fixed lending commitments rose 1.3 per cent.
Loans to buy new or used cars fell to 26-month lows in rolling annual terms in September.
Loans to buy residential blocks of land hit 13-month lows in rolling annual terms in September.
Commercial finance: The seasonally adjusted series for the value of total commercial finance commitments rose 8.0 per cent. Revolving credit commitments rose 20.1 per cent and fixed lending commitments rose 4.6 per cent.
Lease finance: The trend series for the value of total lease finance commitments fell 0.1 per cent in September 2018 and the seasonally adjusted series fell 3.4 per cent, following a fall of 5.2 per cent in August 2018.
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 monthly National Australia Bank business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.
What are the implications for interest rates and investors?
Aussie consumer confidence is above long-term averages. But global sharemarkets remain volatile with investors nervous about economic prospects in 2019. So retailers can’t get too relaxed in the lead-up to Christmas.
Business conditions remain healthy. The area to watch is the job market. Businesses are increasingly finding it harder to attract and retain staff. If businesses need to lift wages to attract staff, this may flow through to higher selling prices. Having said this, 75 per cent of firms said there was no change in labour costs in October.
CommSec expects no change in the official cash rate until 2019 but we will be closely watching data on wage growth and the job market in coming months.
Published by Craig James, Chief Economist, CommSec