Consumer confidence at decade highs

Consumers puzzled about where to put savings
Consumer Confidence; Labour accounts; China data

Consumer confidence: The Westpac-Melbourne Institute Index of Consumer Confidence rose by 4.1 per cent in December, lifting from 107.7 in November to a decade high of 112.0 points (highest since October 2010). A reading above 100 points denotes optimism.

Wisest places for savings: Consumers believe that the wisest place for extra savings is in the bank (30 per cent of respondents). But 11.7 per cent say that they don’t know where is the wisest place to put new savings – the highest level in the 25-year history of the survey.

Labour market in focus: The Bureau of Statistics (ABS) has released a report detailing developments in the job market over the September quarter.

Chinese inflation: Consumer prices fell 0.6 per cent in November to be 0.5 per cent down on the year – the first fall in prices in 11 years. Producer prices fell 1.5 per cent in the year to November.

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

What does it all mean?

• Australia has been relatively successful in supressing the COVID-19 virus, allowing the economy to re-open and allowing people to get on with their lives. Unsurprisingly, consumers have become more optimistic. If people are more positive, they are more likely to spend. And it is clear that this is precisely what is occurring. There are still challenges with the virus, but there is also the hope of a vaccine(s).

• While we are more positive, that doesn’t mean that we are clear about where to place our savings. Around one-in-eight Aussies don’t know where is the ‘wisest (or ‘best’) place to put new savings – and that is especially the case in NSW. Bank accounts are considered ‘safe’, but is now the right time to put money into real estate or shares given record low interest rates and yield differentials? Aussies are not sure. Still, around 6 per cent of people – a little more than average – believe the wisest thing to do with savings is to spend it.

What do the figures show?

Consumer confidence – November

• The Westpac-Melbourne Institute Index of Consumer Confidence rose by 4.1 per cent in December, lifting from 107.7 in November to a decade high of 112.0 points. A reading above 100 points denotes optimism. The index is up 48.1 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 3.4 per cent. And the expectations index rose by 4.5 per cent.

The ‘time to buy a dwelling’ index eased 5.9 per cent to 124.2. The ‘house price expectation’ index rose 9.4 per cent to 143.7 to stand 2.5 per cent higher for the year. The ‘unemployment expectations’ index fell (improved) by 16.2 per cent to a decade low of 106.3.

• Wisest place for savings: Overall 30 per cent of respondents believe the wisest place to put new savings is in the bank – down further from a 5½-year high of 34.8 in the June quarter. The proportion of consumers that nominated shares rose from 9.2 per cent to 9.5 per cent but down from a 6½-year high of 11.4 per cent in June. And 9.7 per cent believe the wisest place for savings is real estate, down from 9.9 per cent in the September quarter.

• But of concern, 12 per cent say that they don’t know the wisest place for savings – the highest level in the 25-year history of the survey.

• Consumers are less keen on paying down debt – the reading of 16.3 per cent was a 6-year low. Interestingly, 6.2 per cent thought ‘spend it’ was the best use for new savings – the highest reading in 18 months. Those electing ‘superannuation’ as the wisest place for savings fell from 6.9 per cent to 4.6 per cent.

Labour accounts – September quarter

• The Bureau of Statistics (ABS) has released a report detailing developments in the job market over the September quarter 2020. Most of the data has been previously released. The latest monthly job market data is October 2020.
One of the major findings was that the multiple job holding rate increased 17.5 per cent to 5.7 per cent of all employed people in the September quarter (732,300 people), up from a record low of 4.9 per cent in the June quarter (623,200 people) but down from 6 per cent in the March quarter.

• The ABS noted: “The improvement in the labour market seen in the September quarter Labour Account data echoes the recovery seen in other indicators, such as the Labour Force Survey and payroll jobs data. Today’s data provides a picture of the extent of recovery across industries in the labour market, following the release of the National Accounts last week.”

• “The Labour Account is the best source of headline information on employment by industry and sector, drawing upon the broad range of labour market statistics the ABS produces. It contains a range of key indicators for jobs, people, hours, and payments back to September quarter 1994.”

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?

• Aussie consumers are heading into Christmas in fine voice. And that is especially encouraging for Aussie retailers. Consumers have an open mind on what to do with their money – and that means they are open to suggestions. In the past, many would have looked to pay down debt, but seemingly Aussie consumers are more relaxed about their borrowings.

• While consumers are generally more positive, of significance they have especially become more optimistic about job prospects with the unemployment expectations index at decade lows.

• The ABS separately released data showing a big lift in those working two or more jobs. Clearly if more people are successful in getting more than one of their jobs back, it shows the extent of healing in the job market.

Published by Craig James, Chief Economist, CommSec