Shares favoured over property
Consumer Sentiment; Labour Account; China data
Consumer confidence: The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 2.6 per cent in March to 111.8 – the second highest reading in seven years. A reading above 100 points denotes optimism.
Wisest places for savings: Consumers believe that the wisest place for extra savings is in the bank (30 per cent of respondents). But 10.5 per cent of people now believe that the wisest place for savings is shares – the second highest reading in seven years. Fewer Aussies (9.3 per cent) believe that real estate is the wisest place for new savings.
Labour market in focus: The Bureau of Statistics (ABS) has released a report detailing developments in the job market over the December quarter.
Chinese inflation: Consumer prices rose 0.6 per cent in February to be 0.2 per cent down on the year (survey -0.4 per cent). Producer prices rose 1.5 per cent in the year to February (survey 1.7 per cent).
The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
What does it all mean?
• Yesterday, survey data showed that both consumers and businesses are confident about the outlook for the economy and confident about the outlook for their finances/business operations. Today, it was the turn of the monthly consumer sentiment report to confirm the optimistic view.
• But for confidence to be retained in coming months, much will depend on continued suppression of the virus, the roll out of vaccines across the country and domestic borders remaining open.
• Where do you believe is the wisest place to put new savings? Despite soaring home prices, more consumers now believe that shares (listed equities) is the better option for new savings compared with real estate.
What do you need to know?
Consumer confidence – March
• The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 2.6 per cent in March to 111.8 – the second highest reading in seven years. The index is 17.1 per cent above its pre-pandemic level in February 2020 and up 47.9 per cent after hitting 29-year lows of 75.6 points in April, 2020. A reading above 100 points denotes optimism. The survey was taken over March 1-4.
• The current conditions index rose by 3.4 per cent. And the expectations index rose by 2.1 per cent.
• All of the five major components of the index rose in March:
Of the remaining sub-components, the ‘time to buy a dwelling’ index fell by 3.6 per cent to 116.4. The ‘house price expectations’ index lifted 3.1 per cent to 7-year highs of 159.5. The ‘unemployment expectations’ index fell (improved) by 2.1 per cent to 112.0 – near 9½-year lows.
• Wisest place for savings: Overall 30 per cent of respondents believe the wisest place to put new savings is in the bank – unchanged over the quarter but down from a 5½-year high of 34.8 per cent in the June quarter 2020. The proportion of consumers that nominated shares rose from 9.5 per cent to 10.5 per cent – the second highest reading in seven years. And 9.3 per cent believe the wisest place for savings is real estate, down from 9.7 per cent in the December quarter.
• Encouragingly only 6.6 per cent now say that they don’t know the wisest place for savings – that result is down from 11.7 per cent in the December quarter – the highest level in the 25-year history of the survey.
• In the quarter, 17.7 per cent of consumers thought that paying down debt was the wisest place for new savings, up from a 6-year low of 16.3 per cent. Those electing ‘superannuation’ as the wisest place for savings rose from 4.6 per cent to 7.5 per cent – a 4-year high.
Labour accounts – September quarter
• The Bureau of Statistics (ABS) has released a report detailing developments in the job market over the December quarter 2020. Most of the data has been previously released. The latest monthly job market data is January 2021.
• The ABS noted: “Filled jobs increased by 403,700 over the December quarter. There were 14.2 million filled jobs, up from a low of 13.6 million in the June quarter. Around 7 out of 10 of the filled jobs that were lost during the March and June quarters have now been regained.”
• “Filled jobs grew in almost all industries in the December quarter, continuing the recovery from the June quarter. The largest quarterly increase was seen in the Health care and social assistance industry (6.2 per cent), which rose to a record high of more than 2 million filled jobs, and grew by 6.8 per cent over the year. Filled jobs remained lower than the previous year’s levels in 13 out of the 19 industries.”
• “In the December quarter, around 6.0 per cent of employed people worked more than one job, up slightly from 5.7 per cent in the September quarter. This reflected faster growth in secondary jobs (8.3 per cent), compared to jobs worked by people as their main job (2.5 per cent).”
• “The Labour Account is the best source of headline information on employment by industry and sector, drawing upon the broad range of labour market statistics produced by the ABS. It contains a range of key indicators for jobs, people, hours, and payments back to September quarter 1994.”
What is the importance of the economic data?
• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. 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. Confident consumers may be more inclined to spend, especially on major items.
• “The Australian Labour Account complements other Australian Bureau of Statistics measures to build a more comprehensive picture of the labour market. Labour Account data provides the number of filled jobs at a point-in-time each quarter, while the Jobs in Australia data provides insights into all jobs held throughout the year, and Labour Force Survey data measures the number of people employed each month.”
What are the implications for investors?
• Aussie consumers believe that home prices will rise further – the reading from the latest survey is the highest in seven years. But is it a good time to buy a home? No, according to survey participants – the reading falling by 3.6 per cent in the month. Is there likely to be a better time to buy a home later in the year? Are prices too high now? Are there better options for savings? All questions to be explored.
• And interestingly, only 9.3 per cent of consumers now believe the wisest place for savings is in real estate, a result now exceeded by shares (10.5 per cent). Over time, returns on real estate and shares have been neck-and-neck.
• But conservative options still reign. In the latest survey, 30 per cent believe the wisest place for savings is in the bank followed with “pay debt” favoured by 17.7 per cent of consumers.
Published by Craig James, Chief Economist, CommSec