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Consumer confidence at 7-year highs
Consumer Confidence

Consumer confidence: The Westpac-Melbourne Institute Index of Consumer Confidence rose by 2.6 per cent in November, lifting from 105 in September to a 7-year high of 107.7 points. A reading above 100 points denotes optimism. The index is up 42.5 per cent after hitting 29-year lows of 75.6 points in April.

Inflation: The Australian Bureau of Statistics (ABS) has released a report highlighting inflation for discretionary and non-discretionary goods and services since 2011.

Sector rotation: A common feature across global sharemarkets over the past two days has been sector rotation. The prospect of a vaccine has lifted share prices for travel, transport & leisure stocks, banks, energy and property trusts while investors have been taking profits on previous high-flying sectors like retailing, supermarkets and gold.

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

What does it all mean?

• Aussie consumers are feeling more chipper. COVID-19 is being suppressed across the nation and both fiscal and monetary policy settings are set to maximum stimulus. No doubt Aussie consumers are looking at the situation in other parts of the globe and understandably feeling good about where we stand down under.

• Sentiment has lifted for three straight months and we have seen similar improvement across the country. South Australians are the most confident, with Victoria not far behind from Queensland.

• Those over the age of 45 are less positive than younger Aussies, more affected by low savings rates. No doubt the more senior Australians are also wondering whether they will still have the opportunity to get overseas again – perhaps to see relatives – given the global COVID-19 situation.

• It’s important to note that the survey took place before the US election result was clear and the news of the vaccine, so arguably confidence levels would be even higher, perhaps approaching highs seen a decade ago.

• The prospect of a vaccine continues to broadly lift sharemarkets although there is a lot of movement below the surface. Airlines, travel, energy, banks and shopping centres are back in favour as Aussie investors see scope for people to travel again across international borders. There is still some way to go in the development and production of a virus, but investors see more positive prospects for travel-dependent companies.

What do the figures show?

Consumer confidence – November

• The Westpac-Melbourne Institute Index of Consumer Confidence rose by 2.6 per cent in November, lifting from 105 in September to a 7-year high of 107.7 points. A reading above 100 points denotes optimism. The index is up 42.5 per cent after hitting 29-year lows of 75.6 points in April. The survey was based on responses from 1,200 people and conducted in the week from November 2 to November 6, 2020.

• The current conditions index rose by 2.2 per cent. And the expectations index rose by 2.6 per cent.

Discretionary and non-discretionary inflation

• The Australian Bureau of Statistics (ABS) has released a report highlighting inflation for discretionary and non-discretionary goods and services since 2011.

What is the importance of the economic data?

• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. 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. Confident consumers may be more inclined to spend, especially on major items.

What are the implications for investors?

• A volatile year has just become even more interesting with the announcement on Monday night (Australian time) of an effective vaccine against the COVID-19 virus. Investors have work to do, and must again determine future prospects for companies in their portfolios.

• More generally, confident Aussies, supported by tax cuts, cash handouts and government wage subsidies have good reason to spend. So while shares in stocks like JB Hi-Fi and Kogan have fallen in response to profit-taking, prospects for consumer spending remain positive. Today the Aussie sharemarket is on track for its longest winning streak since June 10 on vaccine and stimulus optimism.

Published by Craig James, Chief Economist, CommSec