Consumer confidence lifts the most in a year

New house sales hit 14-month high

Weekly consumer sentiment; New house sales

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 4.0 per cent to 118.9 points – the biggest increase in a year. Consumer sentiment is above the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.

Current economic conditions: The measure of (current) economic conditions over the next 12 months rose by 12.6 points – the biggest weekly lift in almost two years – to +7.2 points.

Good time to spend: The measure on whether it was a ‘good time to buy a major household item’ rose by 4.3 points to +40.3 points – the highest level since July 22 2018.

New house sales: The Housing Industry Association reported that in seasonally-adjusted terms, new detached house sales rose by 28.8 per cent to 5,198 units in May – the highest level since March 2018. But sales still fell by 11.3 per cent during the three months to May when compared with a year ago.

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.

What does it all mean?

• Consumers remain cautious. Slow wages growth and elevated mortgage debt continue to constrain household spending. And Aussies want to work more hours, as represented by rising underemployment.

• The Aussie economy lost some momentum last year and economic data releases have been mixed in recent months. But on a positive note, sentiment towards the Sydney and Melbourne property markets has improved and business confidence has lifted in the aftermath of the federal election and last month’s interest rate cut by the Reserve Bank.

• In fact, a co-ordinated ‘three-pronged’ policy attack, focused on reducing mortgage rates, cutting personal income taxes and easing home loan restrictions (by bank regulator APRA) have buoyed Aussie consumers.

• And of course, interest rates are expected to be cut further today when Governor Philip Lowe delivers his latest monetary policy decision at 2.30pm AEST.

• But the ‘feel good’ factor doesn’t stop there. The Aussie sharemarket lifted by a whopping 17.2 per cent in the six months to June 30, kicking-off the best start to a calendar year since 1992 – boosting Aussie super balances.

• In further signs of a tentative stabilisation in the property market, data from the Housing Industry Association shows that new detached house sales lifted in May and are now back at levels last seen in March 2018.

• And the weaker value of the Aussie dollar against the greenback, a 3 per cent increase in the minimum wage and much-welcomed rainfall in some drought afflicted farming communities combined could all lift economic activity. All of which may have contributed to the biggest lift in households’ views of current economic conditions since July 30 2017.

What do the figures show?

Consumer Sentiment

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 4.0 per cent to 118.9 points – the biggest increase in a year. Consumer sentiment is above the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.

• Four out of the five major components of the index rose last week:

The estimate of family finances compared with a year ago was down from +11.4 points to +9.0 points;

The estimate of family finances over the next year was up from +24.2 points to +25.5 points;

Economic conditions over the next 12 months was up from -5.4 points to +7.2 points;

Economic conditions over the next 5 years was up from +5.4 points to +12.8 points;

The measure of whether it was a good time to buy a major household item was up from +36.0 points to +40.3 points.

• The measure of inflation expectations fell from 4.3 per cent to 3.7 per cent.

New house sales

• The Housing Industry Association reported that in seasonally-adjusted terms, new detached house sales rose by 28.8 per cent to 5,198 units in May – the highest level since March 2018. But sales still fell by 11.3 per cent during the three months to May when compared with a year ago.

• Sales lifted in all four major states in May. The volume of detached house sales rose in NSW (up 54.2 per cent), Western Australia (up 34.0 per cent), Queensland (up 26.0 per cent), Victoria (up 25.3 per cent) and South Australia (up 0.9 per cent).

• No data was published by the HIA for multi-unit sales.
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 Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 home builders. The survey covers around 20 per cent of the home building industry.

What are the implications for interest rates and investors?

• It’s all happening today. The pollies arrive back in Canberra with income tax cuts firmly on the agenda. And the Reserve Bank hands down its interest rate decision this afternoon, before Governor Philip Lowe speaks at a Board dinner with the Darwin business community tonight.

• The Reserve Bank is hoping that additional interest rate cuts will lower household mortgage repayments, encouraging consumers to part with their spare cash on goods and services, rather than diligently paying down their mortgage debt. Retailers could potentially benefit in an ultra-competitive shopping environment.

• And if today’s ANZ-Morgan weekly consumer confidence survey is any guide, Aussie consumers seem open to the idea of engaging in some retail therapy.

• But before we get ahead of ourselves, the government’s tax package legislation still needs to be passed. And it’ll take some time for Aussies to lodge their tax returns now that the financial year has concluded.

• Either way, it appears that the Aussie economy is close to bottoming due to combined fiscal and monetary policy stimulus. The uncertain global growth backdrop, however, combined with ongoing drought, loss of momentum in the labour market and the added challenge of negotiating a ‘soft landing’ in the housing market all present near-term obstacles to various sectors of the economy.

• Therefore, CommSec expects another rate cut today.

Published by Ryan Felsman, Senior Economist, CommSec