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Consumers’ mood boosted by jobs and Aussie dollar
Consumer sentiment

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.6 per cent to 111.6 points. Sentiment is below the average of 114.4 points held since 2014 and the longer term average of 113.1 points since 1990.

Major household purchase intentions: The measure of whether it was a ‘good time to buy a major household item’ rose by 5.1 per cent to 28.1 points – the highest level in 7 weeks – but still below the longer term average of 32.6 points.

The consumer confidence figures have implications for retailers and other consumer-focussed businesses.

What does it all mean?

• The mood of Aussie consumers improved last week. And why not? One of the most crucial pillars for confidence is continued momentum in the job market and perceptions around unemployment expectations.

• Concerns over rising unemployment receded (down 1.3 per cent) in Westpac-Melbourne Institute’s October consumer sentiment survey. And it appears that the release of last week’s solid September job report also lifted consumer morale in the ANZ-Roy Morgan weekly sentiment survey. In September, 26,200 full-time jobs were added and the unemployment rate retreated a smidgen (to 5.2 per cent, seasonally adjusted).

• Perhaps with better job security, lower mortgage repayments and continuing home price gains in Sydney and Melbourne (up by 1.3-1.4 per cent so far in October), some Aussie households – armed with tax refunds – are contemplating purchasing a major household item. Big-ticket online sales events such as Black Friday and Cyber Monday are only a month away.

• Aussie consumers will also be well aware that the Aussie dollar has strengthened against the greenback this month. In fact, the Aussie is currently trading around US68.68 cents – up by 1.7 per cent so far in October. Dollar strength has occurred amidst a scaling-back of interest rate cut expectations in November (following the jobs data) and investor optimism around trade and the Brexit. Of course, the stronger currency increases Aussie consumers’ purchasing power of imported goods and makes overseas holidays generally cheaper.

What do the figures show?

Consumer Sentiment

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.6 per cent to 111.6 points. Sentiment is below the average of 114.4 points held since 2014 and the longer term average of 113.1 points held 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 down from +9.7 points to +7.1 points;

The estimate of family finances over the next year was up from +23.5 points to +24.0 points;

Economic conditions over the next 12 months was up from -4.4 points to -4.1 points;

Economic conditions over the next 5 years was down from +4.0 points to +2.9 points;

The measure of whether it was a good time to buy a major household item was up from +21.9 points to +28.1 points.

• The measure of inflation expectations was steady at 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?

• Consumers remain cautious. Confidence is hovering around 4-year lows. Wages growth is tepid and mortgage debt is elevated. The bills are never-ending, with some Aussies ‘feeling the pinch’. And the Wallabies’ latest failure – this time at the Rugby World Cup – has dented national pride.

• But there is room for optimism. Jobs – mainly full-time – have been added for 36 consecutive months. Aussie wealth is increasing again. Property prices are lifting in the most populous cities (up by 5.1 per cent in Sydney and Melbourne since the Federal Election). The S&P/ASX200 index lifted by 0.6 per cent last week and is up by 17.8 per cent this year. Even retail spending rose by the most in six months in August, up by 0.4 per cent. A ‘gentle turning point’? Time will tell.

• While next week’s inflation data is expected to show yet another benign outcome for the September quarter – fact is, consumers are benefiting from lower prices of goods, such as clothing, footwear, audio visual (TVs) and communications-related costs. And real wages are still positive outside of Western Australia.

• Commonwealth Bank Group economists expect a rate cut in February 2020 after a pause. The Reserve Bank still wants to see the unemployment rate closer to 4.5 per cent and inflation near 2.5 per cent. Of course, with limited conventional monetary policy ammunition at its disposal, the Reserve Bank would prefer to see additional fiscal initiatives potentially be announced in the Federal Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) statement due in December to prop-up sluggish economic activity.