Consumer views on household purchases hit 3-month high

Consumers’ inflation expectations hit 5-month high

Consumer sentiment; New home sales

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.5 per cent to 108.5 points – the highest reading since early December. But sentiment remains below both the average of 114.1 points held since 2014 and the longer term average of 113.1 points since 1990.

Households’ considering major purchases: The measure of whether it was a ‘good time to buy a major household item’ rose by 2.7 per cent to 27.8 points – the highest level since October 20 2019.

Inflation expectations: Consumer inflation expectations over the next two years rose from 4.0 per cent to 4.2 per cent last week – the highest level since September 1 2019.

New detached home sales: In seasonally-adjusted terms, private new detached home sales rose by 2.0 per cent in December. But sales fell by 1.5 per cent in the December quarter to be down 6.8 per cent from 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?

• Aussie consumers appear unmoved by the blanket coverage of the Novel coronavirus outbreak. While the economy is expected to be hit by weaker Chinese demand for our resources and a significant reduction in tourism and student numbers, domestic economic data releases in recent weeks have exceeded expectations. In fact, Citi’s Economic Surprise for Australia – which measures data surprises relative to market expectations – is near the highest level since September at 34.1 points.

• Why? Key leading economic indicators around the jobs and housing market have improved. The Department of Employment’s skilled internet job vacancies index rose by 0.64 per cent in December – the most in 22 months. And ANZ’s job ads index lifted by 3.8 per cent in January – the biggest lift in 7 months. And yesterday’s release – trend private sector building approvals for December – showed a 2.2 per cent increase – the strongest monthly growth rate since mid-2017. Combined with a broader lift in capital city and regional home prices, strengthening demand for home loans and a weaker Aussie dollar, the economy is expected to chug along at a modest pace.

• Consumers continue to busily pay down mortgage debt and remain constrained by tepid wage gains. But with better job security – the national unemployment rate has fallen back to near 8-year lows – consumers appear more willing to part with their coin in the lead up to Easter. Consumers believe now is the best time to buy a major household item since October.

• And rising food prices due to the drought hasn’t gone unnoticed by consumers at the checkouts. Over the year to the December quarter, food and non-alcoholic beverage inflation grew by 2.6 per cent – the strongest annual growth rate in 5 years. And this doesn’t include the potential bushfire impact on fruit orchards, nut producers, dairy farmers and beef graziers in January.

What do the figures show?

Consumer sentiment

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.5 per cent to 108.5 – the highest reading since early December. But sentiment remains below both the average of 114.1 points held since 2014 and the longer term average of 113.1 points since 1990.

• Three of the five major components of the index rose last week:

The estimate of family finances compared with a year ago was up from +9.5 points to +9.8 points;

The estimate of family finances over the next year was down from +23.5 points to +23.1 points;

Economic conditions over the next 12 months was up from -16.2 points to -14.4 points;

Economic conditions over the next 5 years was down from -1.3 points to -3.8 points;

The measure of whether it was a good time to buy a major household item was up from +24.5 points to +27.8 points – a three-month high.

• The measure of inflation expectations was up from 4.0 per cent to 4.2 per cent – a five-month high.

New home sales – December quarter 2019

• In seasonally-adjusted terms, private new detached home sales rose by 2.0 per cent in December. But sales fell by 1.5 per cent in the December quarter to be down 6.8 per cent from a year ago.

• The Housing Industry Association reported that the volume of detached house sales in the December quarter rose in NSW (up 15.1 per cent) and Western Australia (up 12.8 per cent). But sales declined in South Australia (down 12.8 per cent), Victoria (down 9.9 per cent) and Queensland (down 5.7 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 15 per cent of the home building industry.

What are the implications for interest rates and investors?

• Consumers remain cautious but appear willing to spend in an environment where job security is improving and home prices are lifting. In fact, online Aussie furniture retailer Temple & Webster today reported a 50 per cent lift in first half revenue to $74.1 million. The company said that the result was driven by a 45 per cent increase in customers.

• Despite consumer concerns about the economic outlook, the Federal government and Reserve Bank stand ready to ease monetary and fiscal policies to shield the economy from a likely virus-induced slowdown in China.

• Commonwealth Bank Group economists continue to expect another interest rate cut from the Reserve Bank in the coming months to support the economy.

Published by Ryan Felsman, Senior Economist,CommSec