Consumer confidence hits 27-month high

New residential home building hits 6½-year low
Consumer Confidence; Home sales; Tourism; Dwelling starts; Economic forecasts

Consumer confidence: The Westpac-Melbourne Institute Index of Consumer Confidence rose by 11.9 per cent in October, lifting from 93.8 in September to a 27-month high of 105 points. A reading above 100 points denotes optimism. The index is up 38.9 per cent after hitting 29-year lows of 75.6 points in April.

New detached home sales: In seasonally adjusted terms, private new detached home sales rose by 3.8 per cent in September to be up 28.9 per cent over the quarter. In the seven months since COVID-19 restrictions came into effect in March, sales are 11.8 per cent higher than at the same time last year.

Preliminary overseas travel: In September, there were 49,800 estimated overseas departures and 16,700 estimated arrivals. Departures fell 18.2 per cent, but arrivals were up 8.3 per cent compared to August.

New dwelling starts: The number of dwelling starts fell by 5.6 per cent to 42,448 units in the June quarter. There are currently 183,120 homes being built across Australia. In original terms, work started on 171,274 new dwellings over the 12 months to June – the lowest number in 6½ years.

Global growth forecasts: The International Monetary Fund (IMF) expects the global economy to contract by 4.4 per cent in 2020 before rebounding by 5.2 per cent in 2021. The Australian economy is tipped to contract by 4.2 per cent in 2020 before expanding 3 per cent in 2021.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The home sales data has implications for banks, retailers, developers, building and building material companies. The tourism data is useful in showing the impact of travel restrictions on the economy. Building & building material companies are affected by dwelling starts including Boral, James Hardie, Adelaide Brighton, Lend Lease, CIMIC, Dulux and Brickworks. Global economic forecasts are useful for exporters and companies that trade across a range of countries.

What does it all mean?

• Aussie consumer confidence has hit 27-month highs. Yes, you read it correctly – sentiment is currently at the highest level since July 2018! And in further good news, confidence in virus-hit Melbourne (up 13.3 per cent to 102 points) is back at levels last seen in August 2019. And sentiment in COVID-19 ‘hotspot’ Sydney lifted by 13.6 per cent to an 18-month high of 108.5 points. But will it encourage more spending given home price weakness?

• Westpac-Melbourne Institute’s survey of 1,200 consumers was largely conducted after the Federal Budget was handed down and the Reserve Bank added a clear policy easing bias to its statement on October 6. Of course, the respondents liked what they heard from Federal Treasurer Josh Frydenberg with Westpac reporting, “For this Budget we saw a net positive balance of 9.5 per cent [average since 2010 is -29 per cent] indicating that a clear majority of respondents assessed that the Budget would ‘improve their finances’.”

• And the growing prospect of even lower borrowing costs has emboldened Aussie consumers, despite high unemployment, elevated mortgage debt and virus-related home loan deferrals. In fact, sentiment for mortgagors rose by 12.7 per cent to a 27-month high of 108.7 points in October. And those that fully own their home are even more chipper with confidence up 13.5 per cent to 33-month highs of 105.4 points.

• Home prices are broadly lifting outside of Sydney and Melbourne. So it’s no surprise that consumer views on whether it’s a good ‘time to buy a dwelling’ surged by 10.6 per cent to 13-month highs of 122.2 points in October.

• Better sentiment towards the housing market is timely, given the ongoing downturn in residential building construction. While figures are a little dated, builders begun work on just 171,274 new dwellings over the year ended June 30, 2020 – the lowest number since September 2013.

• The decline in dwelling starts in the June quarter likely reflecting the impacts of COVID-19 restrictions, including lockdowns. During the pandemic, some building and construction projects have been delayed or cancelled as businesses consolidate their operations and conserve cash. In recent months, the Australian Industry Group and Housing Industry Association have both highlighted the challenges for construction businesses with new and existing projects being withdrawn or postponed, enquiries and new orders declining, and contracts cancelled. The closure of Australia’s international borders has adversely affected demand for new residential projects.

• The economic downturn and lower inbound migration will likely limit growth in residential building construction. But supportive government policies, including the $688 million HomeBuilder package, additional state based grants in Western and Tasmania, the NSW Government’s $1.1 billion social housing fund and first homebuyer assistance schemes could still boost activity. And the rebound in home sales could support demand for new detached homes – especially with Aussies re-considering inner city living in the wake of the health crisis.

What do the figures show?

Consumer confidence – October

• The Westpac-Melbourne Institute Index of Consumer Confidence rose by 11.9 per cent in October, lifting from 93.8 to a 27-month high of 105. A reading above 100 denotes optimism. The index is up 38.9 per cent after hitting 29-year lows of 75.6 points in April.

• The current conditions index rose by 7.3 per cent. And the expectations index rose by 15.1 per cent.

Published by Ryan Felsman, Senior Economist, CommSec