Consumer confidence strongest since 2010

House building boom; Exit Australia
Consumer confidence; Building activity; Overseas arrivals & departures; Covid-19 survey

Consumer confidence: The Westpac-Melbourne Institute Index of Consumer Sentiment lifted 6.2 per cent in April to 118.8 – the highest reading since August 2010. Confidence rose by 10.5 per cent in April to a record high (since records began in January 1996) of 131.1 for Aussies aged 25-44 years. The ‘mortgager’ confidence sub-index rose by 11.1 per cent to an all-time high of 128.7. And confidence for ‘tradies’ jumped 18.5 per cent in the month to a record 140.1. Readings above 100 points denote optimism.

New dwelling starts: The total number of dwelling starts rose by 18.6 per cent – the biggest quarterly lift in 19 years – to a 2-year high of 51,055 units in the December quarter. Starts are up 19.4 per cent on the year. Total house starts rose by 27.0 per cent to 20½-year highs of 34,313 units to be up by 36.4 per cent from a year ago. Apartment starts rose by 4.6 per cent to 16,553 units, but were down 4.9 from a year ago.

Overseas arrivals & departures: Overseas visitor arrivals fell by 21.7 per cent in February to 6,260 trips. Arrivals are down by 99.1 per cent from a year ago. Resident returns – short trips fell by 26.1 per cent in February to 8,390 trips. Departures are down 98.9 per cent on a year ago. On balance, 3,300 people departed Australia in February with a net 24,090 people leaving Australia since March 2020.

Covid-19 household survey: The Australian Bureau of Statistics (ABS) released its March survey of Aussie households. The ABS said, “The proportion of Australians who had a job working paid hours was similar in March (63 per cent) and February (64 per cent).”

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. Tourism data is important for airlines, hotels, shops and transport operators. Migration data is important for housing markets, retailers and government planners. Building & building material companies are affected by dwelling starts including Boral, James Hardie, Adelaide Brighton, Lend Lease, CIMIC, Dulux and Brickworks. ABS surveys provide insights into how COVID-19 is affecting the economy.

What does it all mean?

• Aussie consumers haven’t been this optimistic since Australia was in the midst of the mining boom. In fact, sentiment, as measured by Westpac and the Melbourne Institute, is now at the highest level since August 2010 when Australia was rebounding from the last big crisis – the Global Financial Crisis.

• The April survey is remarkable given negative news flow around the recent expiry of the government’s JobKeeper wage subsidy and the delayed Covid-19 vaccine rollout. Continued success at supressing the virus, rock bottom mortgage rates, rising asset prices, elevated savings buffers and better job security are boosting consumer morale. The potential for travel bubbles extending beyond New Zealand are also a ‘feel-good’ factor for Aussies as a sense of ‘normalcy’ returns to our lives after an extended period of Covid-19 restrictions.

• So who’s feeling most upbeat? Confidence rose by 10.5 per cent in April to a record high (since records began in January 1996) of 131.1 for Aussies aged 25-44 years. The April ‘mortgager’ confidence sub-index rose by 11.1 per cent to an historic high of 128.7. And confidence for ‘tradies’ jumped 18.5 per cent to a record 140.1 in April.

• Aussies wanting to build a new house, source a land package or renovate better act fast. The application deadline for the Federal government’s $15,000 HomeBuilder grant ends today. The scheme expired on March 31 and has been incredibly successful in reinvigorating the residential building industry during the pandemic.

• Residential building activity surged at the end of 2020 with the flurry of council approvals for the construction of new houses, HomeBuilder grants and the easing of Covid-19 restrictions translating into a surge in dwelling starts in the December quarter. The total number of dwelling starts rose by 18.6 per cent – the biggest quarterly lift in 19 years – to a 2-year high of 51,055 units in the quarter. And total house starts jumped 27 per cent to 20½-year highs of 34,313 units. Boom!

What do you need to know?

Consumer confidence – April

• The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 6.2 per cent in April to 118.8 – the highest reading since August 2010. The index is 24.4 per cent above its pre-pandemic level in February 2020 and up 57.0 per cent after hitting 29-year lows of 75.6 points in April 2020. A reading above 100 points denotes optimism. The survey was taken over April 5-10.

• The current conditions index rose by 5.6 per cent. And the expectations index rose by 6.6 per cent.
Of the remaining sub-components, the ‘time to buy a dwelling’ index fell by 7.9 per cent to 107.2. The ‘house price expectations’ index lifted 2.7 per cent to 7-year highs of 163.9. The ‘unemployment expectations’ index rose (deteriorated) by 5.6 per cent to 118.4.

Dwelling starts & work done – December quarter, 2020

• The total number of dwelling starts rose by 18.6 per cent – the biggest quarterly lift in 19 years – to a 2-year high of 51,055 units in the December quarter. Starts are up 19.4 per cent on the year.

• House starts rose by 27.0 per cent to 20½-year highs of 34,313 units to be up by 36.4 per cent from a year ago. Apartment starts rose by 4.6 per cent to 16,553 units, but were down 4.9 from a year ago.

• Work started on 182,135 new dwellings over the 12 months to December, up by 4.5 per cent on the year. Starts fell from a record high of 234,440 dwellings in the year to June 2016.

• Across Australia, starts in the December quarter rose in all states and territories: NSW (up 3.0 per cent); Victoria (up 12.0 per cent); Queensland (up 27.5 per cent); South Australia (up 10.7 per cent); Western Australia (up 94.1 per cent); Tasmania (up 2.1 per cent); Northern Territory (up 99.3 per cent); and the ACT (up 66.6 per cent).

• In the December quarter the value of residential and commercial building work done rose by 0.1 per cent to be down 2.2 per cent on a year ago. New residential work lifted 2.6 per cent, alterations & additions rose 3.1 per cent and commercial building fell by 3.6 per cent.

• The value of residential and commercial building work in the pipeline stood at $89.9 billion at the end of December, up by 0.8 per cent on a year ago, but below the record-high of $99.7 billion at the end of June 2018.

• Across Australia, 184,356 homes were being built at the end of December, down from a record 229,469 homes in March 2018.

• The value of residential and commercial building work yet to be done stood at $66.7 billion, down 3.9 per cent on a year ago.

Tourism, migration & education – February

• In original terms, overseas visitor arrivals fell by 21.7 per cent in February to 6,260 trips. Arrivals are down by 99.1 per cent from a year ago. The three leading source countries were New Zealand (1,570 trips); the US (670); and UK (630).

• Resident returns – short trips fell by 26.1 per cent in February to 8,390 trips. Departures are down 98.9 per cent on a year ago. Main destinations were New Zealand (1,630 trips); India (670); and the UK (600).

• In February, the number of short-term visitors arriving for educational purposes stood at 200. A year ago 121,120 students arrived in Australia to study.

• There were 12,600 people defined as ‘permanent or long-term departures’ in February. But there were 10,560 people defined as ‘permanent or long-term arrivals’. On balance, 3,300 people departed Australia in the month – the biggest net outflow in five months – with a net 24,090 people leaving Australia since March 2020.

Household Impacts of Covid-19 Survey – March

• The March Covid-19 household survey was released by the ABS. Details can be found at the following link.

• According to the ABS:

“One in six (18 per cent) users of public transport have not used it since the COVID-19 pandemic.

One in six (17 per cent) volunteered before March 2020 and continued in the last 12 months.

Women (22 per cent) were more likely than men (17 per cent) to have experienced high or very high levels of psychological distress.

Paying household bills was the most common use of the Coronavirus Supplement (71 per cent) and the JobKeeper Payment (76 per cent).

The proportion of Australians who had a job working paid hours was similar in March 2021 (63 per cent) and February 2021 (64 per cent).”

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.

• The Australian Bureau of Statistics releases data on overseas arrivals and departures, produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.

• The Australian Bureau of Statistics releases data on dwelling commencements (starts) each quarter. The figures provide guidance on future construction activity. If construction begins on new houses or apartments, it signifies work for building trades.

• The Australian Bureau of Statistics (ABS) is providing updates on the coronavirus impact on households and businesses to provide timely information for decision makers.

What are the implications for investors?

• If consumer confidence is any guide, the rapid Aussie economic recovery will be driven by household spending in 2021. Consumer expectations around family finances and intentions to buy a major household item are back at pre-pandemic levels. Commonwealth Bank (CBA) Group economists expect retail spending to lift by 0.8 per cent in March when the preliminary data is released next week.

• CBA Group economists also expect dwelling investment to make a positive contribution to Australia’s post-pandemic economic recovery in 2021. After falling by 5.4 per cent in 2020, dwelling investment is expected to climb – on average – by 6.2 per cent this year on the back of super-low borrowing costs and the stimulatory HomeBuilder scheme. The surge in home prices – especially standalone houses – is encouraging residential property developers to build more housing. But strong demand, shortages of building supplies and ‘tradies’ could delay homebuilding.

• The latest data available from Federal Treasury shows that 75,256 HomeBuilder applications were made as at March 12 since the program was incepted nationally with initial grants of $25,000 from June 2020. But the expiry of the HomeBuilder scheme on March 31, sharp slowdown in population growth – due to border closures – and an oversupplied apartment market could see total dwelling commencements fall from around 174,200 in 2020 to 142,400 in 2021, according to CBA Group economists. The Housing Industry Association is expecting 130,000 new builds to start this year.

• The New Zealand quarantine-free travel bubble means that Aussies can travel overseas again. But recent Australian Treasury research shows that homebound Aussies have contributed $7.5 billion or 1.5 per cent of GDP to the economy in the December quarter due to people holidaying at home.

Published by Ryan Felsman, Senior Economist, CommSec