Consumer confidence lifts. Input prices hit record high.

Consumer confidence; Purchasing managers’ indexes

The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.3 per cent to 107.4.

The preliminary IHS Markit Australia Composite Purchasing Managers’ index (PMI) rose from 52.1 in October to a 5-month high of 55 in November. A reading above 50 indicates an expansion in activity.

The Composite PMI input prices sub-index rose from 62.6 in October to a record high of 65.9 in November.

What does it all mean?

• Consumer confidence, as measured by ANZ and Roy Morgan, lifted 1.3 per cent last week with sentiment.

• The ANZ-Roy Morgan measure of consumer inflation expectations over the next two years eased from 6½-year highs of 5 per cent to 4.6 per cent last week, supporting sentiment. That said, price pressures remain acute with unleaded petrol prices today hitting record highs in both Brisbane and Melbourne according to real-time fuel-app MotorMouth.

• The underlying ANZ-Roy Morgan confidence sub-components were mixed last week, but consumer views on ‘current financial conditions’ gained 1.6 per cent with ‘future economic conditions’ jumping 4.9 per cent. And ahead of ‘Black Friday’ and ‘Cyber Monday’ sales, consumer views on whether it is a good ‘time to buy a major household item’ rose by 2.1 per cent, implying an increased willingness of Aussie households to part with their hard earn coin.

• Consumer sentiment jumped by 4.9 per cent last week in Victoria after the Andrews government lifted all Covid-19 restrictions for the fully vaccinated. ANZ economists also reported a rebound in confidence in Western Australia (up 2 per cent) with sentiment in Queensland (up 1.7 per cent) continuing to lift. But confidence eased in both NSW (down 1.1 per cent) and South Australia (down 0.5 per cent).

• Australia’s post-Delta lockdown economic recovery is underway with 85 per cent of people aged 16 years and over now double vaccinated, increasing mobility. Activity in Australia’s private sector accelerated in November with surveyed purchasing managers in both the services and manufacturing reporting a pick up in output and demand growth to 5-month highs. IHS Markit economists also reported that employment conditions improved as business confidence broadly recovered from the depths of the Delta shutdowns in Australia’s south-east.

• That said, surveyed business owners in both the services and factory sectors reported that price pressures were intensifying amid labour and raw material shortages, supply chain disruptions and port blockages. In fact, input price inflation hit survey record highs (since May 2016) in November while output prices also continued to lift. And in the manufacturing sector, suppliers’ delivery times lengthened at a survey record rate.

• Some businesses are absorbing rising costs, but with profit margin pressures building rising input prices could eventually lead businesses to pass-on these higher costs to consumers through price hikes.

What do you need to know?

Consumer sentiment – Week ended November 21

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.3 per cent to 107.4 (long-run average since 1990 is 112.4). Three out of the five major sub-components rose last week.

IHS Markit Purchasing Managers’ indexes (PMIs) – November

• The preliminary IHS Markit Australia Manufacturing Purchasing Managers’ index (PMI) rose from 58.2 to 58.5 in November.

• The Services PMI lifted from 51.8 to 55 in November.

• The combined or composite PMI rose from 52.1 to 55 in November with input prices lifting from 62.6 to a record high 65.9 in November.

• All readings were at 5-month highs, with indexes above 50 indicating an expansion in activity.

• According to IHS Markit economists: “The Australian economy grew at a faster pace in November, according to the IHS Markit Flash Australia Composite PMI, and this is reflective of the positive effects from the continued easing of COVID-19 restrictions and decline in new cases. The rate of expansion picked up to a five-month high, indicating that the Australian economy continued to enjoy the strengthening of growth momentum.”

• And, “That said, supply chain issues featured strongly in the Australian PMI survey as delivery times lengthened, widespread shortages were reported and price increases continued to be seen. While some of these can be attributed to the presence of pent-up demand that was reported, it will be worth watching if the constraints clear over time.”

• Also, “Overall business confidence improved in the latest survey and this was a very positive sign. Private sector firms were also more willing to expand their workforce capacity, though instances of labour shortages had continued to surface.”

Published by Ryan Felsman, Senior Economist, CommSec