Australian consumer confidence fell again last week, extending the decline seen since the beginning of the year to 4.4%.
The latest ANZ-Roy Morgan consumer confidence index fell by a further 0.9% to 111.2, leaving the index below its long-run average of 112.7.
Ominously, ANZ note that the last time sentiment fell in January was in 2008, right before the onset of the global financial crisis.
Recent ructions across financial markets, centred around the outlook for the Chinese economy, had a significant impact on sentiment despite the recovery in recent weeks.
As opposed to prior weeks where deteriorating sentiment towards the economic outlook dragged the index lower, the weakness last week was concentrated in sentiment towards personal finances.
Looking backwards, perceptions towards personal finance compared to a year ago fell 2.9%, shading a 2.3% decline in sentiment towards the year ahead.
Despite the deterioration, ANZ points out that both remain above their long run averages.
Recovering ground lost over recent weeks, expectations towards the economy looking one and five years ahead bounced by 2.3% and 0.7% respectively.
Sentiment towards whether now was a good time to buy a major household item slid 0.9%, extending the subindices slide from January 3 to 8.6%.
Warren Hogan, chief economist at ANZ, puts the continued slide in confidence down to concerns about weakness in financial markets, along with concerns for the global economy.
Consumer confidence appears to be falling, having declined by about 1% in each of the last four weeks. Confidence is now below the long-run average level and has reversed much of the ‘Turnbull rally’ from last year. The weakness in global financial markets and concerns over the global economic outlook appear to be the main reason for the weakness in confidence, although recent market stability does have us wondering if there is a greater fragility in the domestic economy than we previously thought.
The weakness in confidence highlights the powerful links between international instability and the domestic economy. The Reserve Bank Board will take note of these international concerns despite solid domestic economic momentum. For today’s policy decision this will mean the RBA cash rate should stay right where it is at 2%. Over time, we expect the case for a further modest interest rate cut will build and the cash rate will fall another 50bp by the end of 2016.
While there is little doubt that economic conditions domestically improved steadily over the second half of 2015, the deterioration in sentiment, along with the outlook for household spending, continues to cast doubt on whether growth in consumption will be able to offset the economic drag created by a further declines in business investment in the year ahead.
Should the household sector falter, something that will likely come down to the performance of the domestic property and labour markets in the months ahead, it’s likely that many will join ANZ in forecasting further rate cuts from the RBA over the year ahead.