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Consumer finances at record highs

Weekly consumer sentiment

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.2 per cent to 114.1 points. Consumer sentiment is just below the average of 114.5 points held since 2014 but above the longer term average of 113.1 points since 1990.

Consumer finances: In the latest survey, the estimate of family finances compared with a year ago was up from +10.3 points to +16.8 points – the highest result in weekly surveys on record (11 years).

China industrial profits: Chinese industrial profits in July rose by 2.6 per cent on a year ago (profits fell 3.1 per cent in the year to June).

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The Reserve Bank Board minutes and speeches provide guidance on interest rate settings.

What does it all mean?

• Consumer sentiment rebounded in line with the sharemarket last week. The ASX 200 share index rose by 1.8 per cent and the weekly consumer sentiment index rose by 1.2 per cent.

• The sharemarket remains a volatile place, impacted from the tit-for-tat tariff battle between the US and China. But investors and consumers alike seem to be of the view that Australian companies can traverse the bumps in the road. Certainly the profit-reporting season shows that Australian companies are still making money with around 94 per cent of ASX 200 companies in the black although only around half of companies have been able to lift profits.

• And despite the trade war, Aussie consumers conclude that their finances are in good shape. In the latest survey, almost 17 per cent of consumers concluded that their finances (the household budget) are in better shape than a year ago – the highest result in weekly surveys going back 11 years. The monthly surveys began far earlier – 1973. And the result on family finances is the highest since October 2007 – almost 12 years.

• The survey results can’t be under-estimated – the results being an objective assessment by consumers of their own finances.

• Aussie consumers conclude that low interest rates, firm job market, real wage gains (wage growth ahead of prices), a sharemarket near record highs, an increase in the minimum wage and tax cuts are all serving to support household finances. The only real ‘negatives’ are the weak Aussie dollar and relatively-high fuel prices.

What do the figures show?

Consumer Sentiment

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.2 per cent to 114.1 points. Consumer sentiment is just below the average of 114.5 points held since 2014 but above 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 up from +10.3 points to +16.8 points;

The estimate of family finances over the next year was down from +28.5 points to +24.7 points;

Economic conditions over the next 12 months was up from -3.2 points to +5.4 points;

Economic conditions over the next 5 years was up from +4.0 points to +4.2 points;

The measure of whether it was a good time to buy a major household item was up from +24.5 points to +29.5 points.

• The measure of inflation expectations rose from 3.8 per cent to 4.1 per cent.
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.

What are the implications for interest rates and investors?

• Three things are required for consumers to lift spending: the job market needs to be solid; consumer finances must be in good shape; and people must believe that future finances will remain healthy. At present, all boxes are ticked. That doesn’t mean that Aussies will spend like there is no tomorrow, but the result is nevertheless positive for retailers.

• Coles noted last week that Aussie consumers are still cautious spenders. In an interview with the Financial Review, Coles chief Steven Cain said “that despite record low interest rates and recent tax cuts, budget- conscious consumers were trading down to private label groceries while wealthier households were buying more premium and convenience products such as ready-made meals and opting to shop online.”

• Vicinity Centres managing director Grant Kelley told the Financial Review that foot traffic was increasing but noted that “This good news is not getting priced in and the bad news is being over-reacted to.”

• The Commonwealth Bank Household Spending Intentions index shows improvement in proposed spending on Health & Fitness, Education and Home Buying and a modest lift in Entertainment and Motor Vehicles. Planned spending on Travel and overall Retail Spending remains weak. In releasing earnings results, Qantas, Flight Centre and Webjet all reported weakness in leisure travel.

• The Reserve Bank is still expected to cut rates again in November 2019 and February 2020.

Craig James, Chief Economist, CommSec