Positive consumer finances; Watchful RBA
Weekly consumer sentiment; Reserve Bank Board minutes
Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.3 per cent to 112.8 points. Consumer sentiment is now below the average of 114.5 points held since 2014 and the longer term average of 113.1 points since 1990.
Reserve Bank: Minutes of the August 6 Reserve Bank Board meeting were released.
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 understandably fell in the past week in response to the volatility on global sharemarkets. But encouragingly, Aussie consumers were positive on their finances/household budgets – not just the current state of finances but also the outlook over the next year. With sharemarkets stabilising again, presumably consumer sentiment will rebound next week. The outlook for family finances is at three-month highs.
• After cutting rates in June and July, Reserve Bank Board members thought it “appropriate” to assess the landscape before deciding the next move on rates. But the Board noted that a 25 basis point was fully factored in by financial markets for November and a similar reduction expected in 2020. So this is the interest rate road map that investors and analysts are working on.
• The ‘special topic’ for Reserve Bank Board members at the August meeting was “unconventional monetary policy measures” used by advanced nations in the past decade. Board members noted that “a package of measures tended to be more effective”. So if the RBA found itself with a cash rate nearing zero, it would likely unveil a range of measures and “communicate clearly and consistently about these measures.”
• The Reserve Bank Board minutes can’t be construed as either ‘dovish’ or ‘hawkish’. However the minutes make it clear – as Governor Lowe has already done – that interest rates will remain low for an extended period.
What do the figures show?
• The weekly ANZ-Roy Morgan consumer confidence rating fell by 2.3 per cent to 112.8 points. Consumer sentiment is now below the average of 114.5 points held since 2014 and the longer term average of 113.1 points since 1990.
• Three out of the five major components of the index fell last week:
The estimate of family finances compared with a year ago was up from +10.1 points to +10.3 points;
The estimate of family finances over the next year was up from +27.7 points to 28.5 points;
Economic conditions over the next 12 months was down from +0.6 points to -3.2 points;
Economic conditions over the next 5 years was down from +12.9 points to +4.0 points;
The measure of whether it was a good time to buy a major household item was down from +26.3 points to 24.5 points.
• The measure of inflation expectations fell from 3.9 per cent to 3.8 per cent.
Reserve Bank August Board minutes
• Last paragraph: “Based on the information available and the central scenario that was presented, members judged it reasonable to expect that an extended period of low interest rates would be required in Australia to make sustained progress towards full employment and achieve more assured progress towards the inflation target. Having eased monetary policy at the previous two meetings, the Board judged it appropriate to assess developments in the global and domestic economies before considering further change to the setting of monetary policy. Members would consider a further easing of monetary policy if the accumulation of additional evidence suggested this was needed to support sustainable growth in the economy and the achievement of the inflation target over time.”
• Risks: “Overall, the domestic risks to the forecast for output growth appeared to be tilted to the downside in the near term, but were more balanced later in the forecast period.”
• Home construction: “Timely information from liaison contacts suggested that increased buyer interest had yet to translate into more housing sales. However, members noted that signs of a turnaround in housing markets suggested there were some upside risks to dwelling investment later in the forecast period, particularly given the expected strength in population growth.”
• Global: “…members observed that the escalation of the trade and technology disputes had increased the downside risks to the global growth outlook, although the central forecast was still for reasonable growth.”
• Global: “In the major advanced economies, risks to the outlook remained tilted to the downside, reflecting the trade disputes.”
• Unconventional monetary policy: “Members reviewed the experience of other advanced economies with unconventional monetary policy measures over the preceding decade”…“Members noted that a package of measures tended to be more effective than measures implemented in isolation. Finally, it was important for the central bank to communicate clearly and consistently about these measures.”
• Outlook: “The forecast for GDP growth over 2019 had been lowered to 2½ per cent. Growth was expected to pick up to 2¾ per cent over 2020 and to around 3 per cent over 2021. This was supported by a range of factors, including lower interest rates, tax measures, signs of an earlier-than-expected stabilisation in some established housing markets, the lower exchange rate, the infrastructure pipeline and a pick-up in activity in the mining sector.”
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 Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.
What are the implications for interest rates and investors?
• Firm job growth, positive views on family finances, tax cuts and the lift in the minimum wage all represent positive drivers for consumer-focused businesses. The main negatives are the lower Aussie dollar, relatively high petrol prices and global economic uncertainty.
• CommSec expects the Reserve Bank to cut rates again in November 2019 and February 2020.
Published by Craig James, Chief Economist, CommSec