Something isn't adding up in the Australian economy

  • ANZ’s consumer confidence index bounced back last week, but the “time to buy a household item” subindex fell again.
  • It now sits below its long-run average, and other key data backs up the argument that Australians are showing a clear aversion to big-ticket purchases.
  • Along with low wage growth and high household debt, ANZ’s David Plank pointed to falling house prices as another catalyst for the trend.

ANZ’s weekly measure of consumer confidence just bounced back, following a sharp fall in the week prior.

But within the latest headline data, ANZ’s “time to buy a household item” sub-index fell again — another indicator that threats to Australia’s consumption outlook remain evident.

The previous reading was taken at the onset of what would turn out to be a week of all-out political chaos in Canberra.

So it’s perhaps not surprising that households were slightly more optimistic, now the Liberal Party has chosen Scott Morrison as its new leader.

That semblance of stability saw the ANZ-Roy Morgan consumer confidence index rise by 2.1%, after three straight falls culminating in last week’s 3.5% drop.

However, ANZ’s local chief economist David Plank specifically highlighted the ongoing falls in the “time to buy a household item” sub-index.

“Despite the tick up in headline confidence, households remain pessimistic about purchasing large household items,” Plank said.

The measure fell by another 2.2% to 126.5, and importantly, it now sits well below its long-term average of 134:

ANZ Bank

The ANZ consumer reading can also be backed up by hard data. Delving into the latest retail sales numbers, Morgan Stanley analysts found that furniture sales turned negative in July (-2.6% y/y).

In addition, vehicle sales in July fell by 7.8% — the sharpest monthly fall since 2008.

The questions is — what’s driving the current aversion to buying big-ticket items?

Monthly jobs data in mid-August showed the trend unemployment rate in July fell to 5.4% — its lowest level in almost six years.

Steady jobs growth and falling unemployment isn’t exactly consistent with falling consumption.

The familiar themes of low wage growth and high household debt are likely to be a factor. And Plank added another reason — the fact that house prices in Australia’s major markets are now falling.

“Sluggish wage growth, high levels of debt and decreasing house prices are likely constraining sentiment in this regard,” Plank said.

It suggests that data points around big-ticket purchases will be worth watching in the months ahead, given the recent signs that flow-on effects from falling house prices are now beginning to be felt in the real economy.

As Morgan Stanley put it: “Consumption is key to getting to trend growth, but current conditions suggest there is much to negotiate before calling that trend your friend.”

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