Virus weighs on female consumer confidence
New residential home building hits 6-year low

Consumer confidence; Dwelling starts

Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment index fell by 6.1
per cent in July to 87.9. Confidence is still 16.3 per cent higher than the 29-year low of 75.6 in April. Victorian consumer confidence fell by 10.4 per cent to 85. A reading below 100 denotes pessimism.

Female confidence falls: Consumer confidence for females fell by 6.9 per cent to 82.3 in July – the second lowest reading since November 2008. Confidence for males was down 5.3 per cent to 93.8 in July.

New dwelling starts: The number of dwelling starts rose by 3.8 per cent to 44,434 in the March quarter.
There are currently 189,247 homes being built across Australia. In original terms, work started on 173,707 new dwellings over the 12 months to March – the lowest number in 6 years. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. Building & building material companies are affected by dwelling starts including Boral, James Hardie, Adelaide Brighton, Lend Lease, CIMIC, Dulux and Brickworks.

What does it all mean?

The virus outbreak is ‘front of mind’ for all Aussies. With Melbourne in its second lockdown and COVID-19 clusters emerging in South-Western Sydney, consumers are becoming increasingly worried about their health, jobs and the economic recovery. Some households and individuals have even begun self-isolating. In fact, consumer confidence fell for the first time in three months in July. Biggest falls were views on the economy over the next 12 months (down 14 per cent) and views on the economy over the next 5 years (down 10.3 per cent).

The pandemic continues to hit Aussie women hard. Many are balancing casual and part-time work with caring duties for children and elderly parents. Figures released by the Bureau of Statistics yesterday revealed that total payroll jobs worked by females were down by 6 per cent between March 14 (when Australia recorded its 100th COVID-19 case) and June 27. The loss of jobs exceeds males – down by 5.4 per cent – over the period. With Victorian schools shut, the Federal Government’s free childcare scheme ending and childcare workers ineligible for JobKeeper payments from July 20, female consumer confidence has fallen back to the second lowest reading since November 2008. Residential home building stabilised prior to the pandemic outbreak with starts lifting modestly in the March quarter. That said, work started on 173,707 new dwellings over the 12 months to March – the lowest number in six years. And in New South Wales, the number of new homes commenced hit 5-year lows of 50,417 units in the March quarter. Lower inbound migration, high unemployment and weaker home prices are likely to see home
building continuing to ease over the remainder of 2020. That said, record low interest rates and government stimulus measures could yet support building activity.

What do the figures show?

Consumer confidence – July 2020

The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 6.1 per cent to 87.9 in July. A reading below 100 points denotes pessimism. Confidence is still 16.3 per cent higher than the 29-year low of 75.6 in April.

The current conditions index fell by 0.2 per cent. And the expectations index fell by 10 per cent.

Four of the five major components of the index fell in July. Westpac-Melbourne Institute said, “The timing of the survey is relevant. It covered the week July 6-10 in which the lock down was announced for Melbourne but the survey closed before the news of a significant cluster was reported for Sydney.” Dwelling starts & work done – March quarter The total number of dwelling starts rose by 3.8 per cent to 44,434 in the March quarter after lifting by 4.5 per cent in the December quarter.

House starts rose by 1.3 per cent to 25,523 dwellings in the March quarter, but were down by 10.4 per cent from a year ago.

Apartment starts lifted by 7.6 per cent to 18,744 units in the March quarter to be up 14.1 from a year ago.

Work started on 173,707 new dwellings over the 12 months to March, down by 16.8 per cent on the year.
Starts fell from the record high of 234,440 dwellings in the year to March 2016.

Across Australia, starts in the March quarter rose in four states/territories: NSW (down 12.2 per cent); Victoria (up 27.7 per cent); Queensland (up 1.6 per cent); South Australia (down 1.2 per cent); Western Australia (up 9.8 per cent); Tasmania (down 3.5 per cent); Northern Territory (down 20.6 per cent); and the ACT (up 12 per cent).

In the year to March, dwelling starts were higher than the decade average in Tasmania (up 18.2 per cent), the ACT (up 7.9 per cent) and South Australia (up 0.5 per cent). Starts were below the decade average in: NSW (down 5 per cent); Victoria (down 2.8 per cent); Queensland (down 19.9 per cent); Western Australia (down 35.1 per cent); Northern Territory (down 64.7 per cent) and total Australia (down 10.2 per cent). In the March quarter the value of residential and commercial building work done fell by 0.5 per cent to be down 7.1 per cent on a year ago. New residential work fell by 1 per cent, but alterations & additions rose 2.1 per cent, while commercial building fell by 0.3 per cent.

The value of residential and commercial building work in the pipeline stood at $90.2 billion at the end of March, down by 1.3 per cent on a year ago and below the record-high of $99.7 billion at the end of June 2018.

Across Australia, 189,247 homes are currently being built, down from a record 231,622 homes in March 2018.

In the March quarter the value of residential and commercial building work yet to be done (completed), stood at $69.4 billion, down 4 per cent on a year ago.

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 Bureau of Statistics releases data on dwelling commencements (starts) each quarter. The
figures provide guidance on future construction activity. If construction begins on new houses or apartments, it signifies work for building trades.

What are the implications for investors?

Consumer confidence will ebb and flow with Australia’s success in containing and supressing virus outbreaks. Confidence is still up by 16 per cent from the 29-year lows reached at the height of the economic lockdown in April. But rising community infection rates and renewed business and travel restrictions are threatening to derail the re-opening of the Victorian and potentially the New South Wales economies – the two largest economies in Australia. The Federal Government’s economic statement to be released on July 23 will be critical in supporting the incomes, wellbeing and confidence of Aussies adversely impacted by pandemic shutdowns.

Residential home builders and construction workers were already under pressure prior to the pandemic due to the weak Aussie economy. The Federal Government’s ‘HomeBuilder’ stimulus, together with state government stamp duty concessions and new home owners grants, are expected to provide a boost to building activity in the latter part of the year. But lower population growth and the broader economic downturn present obstacles to the recovery.

Published by Ryan Felsman, Senior Economist, CommSec