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Lowest New Year consumer confidence since 2009

Aussie job ads hit 3½-year low

Consumer sentiment; Job advertisements

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.7 per cent to 106.2 points – the lowest New Year reading since January 4 2009. Sentiment remains below both the average of 114.2 points held since 2014 and the longer term average of 113.1 points since 1990.

Consumer views on economic conditions: The measure of economic conditions over the next 12 months (‘current economic conditions’) fell to -21.3 points – the lowest level since May 25 2014. And the measure of economic conditions over the next 5 years (‘future economic conditions’) fell to -9.4 points – the lowest level since September 1993.

Job advertisements: ANZ job advertisements fell by 6.7 per cent in December – the biggest fall in 7 months – to be down by 18.8 per cent over the year to 142,569 – the lowest level in 3½ years – in seasonally adjusted terms.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The job advertisements data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies such as SEEK.

What does it all mean?

• Consumer confidence weakened at the beginning of 2020 with Australia’s devastating bushfires ‘front of mind’ for all Aussies. CommSec offers its sincere condolences to all those affected by the tragic loss of life and property. Consumer sentiment – as measured by Roy Morgan and ANZ – is now at the lowest level since September 13 2015. And consumers are the most pessimistic at the start of a New Year since the Global Financial Crisis.

• While the human, environmental and economic impacts are still being assessed, consumers are acutely aware that the huge size of the current bushfires – estimated to have burned at least 10 million hectares of land and destroyed over 1,400 homes (Source: Bloomberg) – will likely have an adverse near-term impact on economic activity. The readings on consumer views on economic conditions – current and future – down by 8-13 per cent from the previous week (December 15) most likely reflect these concerns.

• Agricultural and farm production – already struggling with drought – could be severely disrupted given huge livestock fatalities and impacts on crops. For example, the Adelaide Hills Wine Region industry association estimates that fires have “potentially wiped out a third of wine production in the area” – impacting international wine exports.

• Private investment and business spending – already struggling with weak consumer demand – may be further restrained due to environmental and political uncertainty. And heatwave conditions are forecast by the Bureau of Meteorology to continue for the remainder of the summer.

• At this stage, the impact on international tourism – a big money spinner for the Aussie economy – is unknown. Key South Australian tourist destination – Kangaroo Island – has been devastated. And persistent smoke hazes over Sydney, Melbourne and Canberra may deter future arrivals.

• But it’s not all bad news. Underneath the bonnet, three out of the five major components of the sentiment index rose last week. Importantly, Aussie consumers appear more upbeat about their personal/family finances and expressed an increased desire to ‘buy a major household item.’ The lift in home prices, shares and record low mortgage rates have all improved the cashflows of Aussie households.

• That said, the outlook for consumer spending is highly dependent on developments in the job market. In the minutes of the Reserve Bank Board meeting on December 3, policymakers remarked, “Over the previous few months, measures of the number of job advertisements had not changed much and firms’ near-term hiring intentions had remained broadly stable.” The apparent disconnect between ANZ’s measure of job ads and actual job creation continues to be a focus of economists. According to ANZ, job ads are down by almost 19 per cent over the year to December and fell by 12.6 per cent over the year to November. Yet, annual job growth stands at 2.0 per cent over the year to November, according to the Bureau of Statistics.

What do the figures show?

Weekly consumer sentiment – January 5

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.7 per cent to 106.2 points. Sentiment is below both the average of 114.2 points held since 2014 and the longer term average of 113.1 points held since 1990.

• Three of the five major components of the index rose last week:

The estimate of family finances compared with a year ago was up from +8.4 points to +12.7 points;

The estimate of family finances over the next year was up from +24.9 points to +25.3 points;

Economic conditions over the next 12 months was down from -9.6 points to -21.3 points;

Economic conditions over the next 5 years was down from -1.4 points to -9.4 points;

The measure of whether it was a good time to buy a major household item was up from +17.6 points to +23.3 points.

• The measure of inflation expectations was down from 4.1 per cent to 3.7 per cent.

Job advertisements – December

• ANZ job advertisements fell by 6.7 per cent in December – the biggest fall in 7 months – to be down by 18.8 per cent over the year to 142,569 – the lowest level in 3½ years – in seasonally adjusted terms.

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 Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.

What are the implications for interest rates and investors?

• While the global backdrop has improved with the recent announcement of the trade détente between the US and China, domestic economic activity remains sluggish. Consumer confidence is restrained due to rising job insecurity, elevated mortgage debt, tepid wage growth and worries about the economic outlook.

• While Aussies are concerned about the impact of bushfires on economic activity, increased government spending, including assistance to impacted communities with the rebuilding of residential homes, community facilities and broader infrastructure will likely boost economic output. The Federal Government has already announced around A$500 million of funding would be allotted for the fiscal year that ends in June 2020, with A$1 billion earmarked for 2020/21 and A$500 million for 2021/22 for bushfire rebuilding.

• And hours worked by public safety, public administration and defence personnel could lift with the participation rate falling, keeping the unemployment rate broadly stable.

• Employment and unemployment may be ‘lagging’ indicators of economic activity, but leading indicators of job growth point to a continuing softening of labour market conditions – testing the Reserve Bank’s policy resolve. Policymakers would prefer to see the national jobless rate at 4.5 per cent, well below the current level of 5.2 per cent.

• That said, the job market is performing better than ANZ’s ads gauge would suggest. The impact of bushfires on hiring intentions could be one factor, but Australians are increasingly being hired through social media platforms – such as LinkedIn – and referrals rather than traditional sources, like newspapers and job search engines.

• Commonwealth Bank Group economists expect another interest rate cut on 4 February 2020 to support the economy.

Published by Ryan Felsman, Senior Economist, CommSec