- Australians are confident about their personal finances but not about where the Australian economy is heading, according to the ANZ-Roy Morgan consumer confidence survey.
- ANZ thinks the divergence reflects recent economic news from home and abroad.
- Upcoming Australian labour market data, given its linkages to household confidence and spending, appears to be growing in importance when it comes to the outlook for economic growth, inflationary pressures and interest rates.
Australians remain confident about their personal finances but not about where the Australian economy is heading, an unusual divergence in opinion given the relationship between the two.
The recent divergence is seen clearly in the chart below from ANZ Bank’s latest Australian consumer confidence report, produced in conjunction with Roy Morgan Research.
While sentiment towards financial conditions, shown in blue, is now well above its historic average on a four-week moving-average basis, confidence towards the economy has deteriorated sharply since the beginning of the year, moving from above-average to below-average levels in a relatively quick period of time.
David Plank, Head of Australian Economics at ANZ, says the recent divergence between to the two likely reflects similarly divergent headlines when it comes to the outlook for the global and Australian economies.
“A clear divergence is visible between sentiment toward economic and financial conditions since early this year,” he said following the release of the latest confidence report.
“We believe global news has dictated sentiment around economic sentiment, while more fundamental factors such as continued employment growth have helped maintain confidence in financial conditions.”
While global headlines have been dominated by trade tensions between the US and China, increased volatility in global stocks and signs that global economic growth may have already reached its crescendo in the current cycle, local headlines relating to employment growth, retail sales and the outlook for Australian interest rates appear to have been an offsetting force, keeping overall levels of confidence at relatively elevated levels, albeit off the highs seen earlier this year.
While no one knows how trade tensions between the US and China will play out, recent economic data from abroad suggests that global growth is now moderating after steadily improving for the best part of two years. At a time when major central banks have either started or on the way to tightening monetary policy, it suggests that recent volatility in financial markets may be here to stay.
If that is the case, it underlines the need for Australian labour market data to remain strong to help support confidence levels.
Should the labour market start to weaken — continuing the trend seen in January and February where employment growth slowed noticeably — it suggests that sentiment towards finances may also begin to deteriorate, casting doubt as to whether consumer spending can remain firm at a time when property prices in many larger cities are falling.
Definitely one to keep an eye on in the months ahead, starting with Australia’s official jobs report for March that will be released on Thursday, April 19.