Tariffs trump jobs for Aussie consumersConsumer sentiment
Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.1 per cent to 118.9, but was still above the average of 114.0 since 2014 and average of 113.0 since 1990.
Views on current economic conditions: Consumer views on current economic conditions (for the next year) fell by 3.8 per cent to 107.6 points last week – the lowest level in seven weeks. 
What does it all mean?
Consumer confidence is still elevated, but last week’s fall in sentiment was surprising given the release of the blockbuster June employment report, where an eye-watering 50,900 jobs were added, on Thursday. Perhaps the end of the school holidays and rising petrol prices were to blame?
The survey was conducted over the weekend and US President Donald Trump’s comments on Friday, that he was ready to impose tariffs on all US$505 billion worth of Chinese imports, would’ve hit the newswires as we headed off to kids sport on Saturday morning.
And the US President’s salvos on Twitter are beginning to weigh on US consumer confidence. While still high due to record job gains, a rising sharemarket and lower taxes, Americans are becoming more wary of the likely impact of tariffs, if the latest University of Michigan survey is any guide. Around 40 per cent of American households now view trade protection negatively compared to just 15 per cent two months ago.
Rising raw materials and input costs are beginning to show-up in the latest US company earnings season. Let’s not forget that imported washing machine tariffs of 20-50 per cent took effect back in February. Overnight, washing machine maker Whirlpool reported a quarterly loss in June as sales fell by almost 4 per cent. Whirlpool and competitor Electrolux have pushed through price increases to consumers to offset steel tariffs. Retail prices of US washing machines are up 20 per cent over the year to June.
It remains to be seen whether implemented tariffs and slowing trade flows between the world’s two largest economies adversely impacts Aussie economic activity. Nevertheless the ‘war of words’ is clouding sentiment around the broader global economic backdrop, as reflected in the weekly declines in views around near-and longer term economic conditions.
What do the figures show?Consumer Sentiment
The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.1 per cent to 118.9, but was still above the average of 114.0 since 2014 and average of 113.0 since 1990.
All components of the index decreased last week:
The estimate of family finances compared with a year ago was down from 108.3 to 106.2;
The estimate of family finances over the next year was down from 126.7 to 124.9;
Economic conditions over the next 12 months was down from 111.9 to 107.6;
Economic conditions over the next 5 years was down from 117.3 to 112.7;
The measure of whether it was a good time to buy a major household item was down from 143.2 to 143.0.
The measure of inflation expectations fell from 4.3 per cent to 4.2 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?
The number of Aussie optimists still outweighs the number of pessimists. Confidence is holding-up in the face of negativity about home prices, trade tensions, slow wages growth and mortgage debt.
Solid economic growth, robust business activity data and the passing of the Turnbull government’s personal income tax cuts legislation have lifted spirits. Jobs growth is strong, but goods prices remain low, as likely to be confirmed in tomorrow’s inflation report. Interest rates won’t lift in the near-term.
While US President Trump’s tariff tirades are getting a lot of traction in the press, and some goods prices appear to be rising in the US on the back of rising input prices and duties, the bottom line is that most Aussies are more focused on their own household budgets. Petrol prices will fall in the big capital cities over the next two weeks, as evidenced by lower wholesale unleaded petrol prices and the commencement of the retail petrol discount cycle.
And it appears being employed or being secure in your job is likely to be the key to household “happiness”. Around 339,000 jobs have been created over the year to June and the unemployment rate has fallen to 5½-year lows, supporting consumer spending.
The relationship between consumer sentiment and unemployment expectations is strong. It’s no coincidence that the Westpac-Melbourne Institute’s Unemployment Expectations index improved significantly in the second half of 2017 and at the beginning of 2018, when annual jobs gains were at record highs. You’d expect the index to fall further in the August survey after such a strong June employment report.
CommSec expects interest rates to be unchanged until at least February 2019.
Published by Ryan Felsman, Senior Economist, CommSec