- The ANZ-Roy Morgan Australian consumer confidence index jumped again last week, suggesting not a lot of concern about falling home prices.
- Sentiment towards current household finances now sits near the highest level since the GFC, helped in part by a recent pullback in petrol prices and strengthening labour market conditions.
- Key data on Australian wages growth and unemployment in the days ahead will likely determine the near-term outlook for confidence levels.
One of the main concerns about Australia’s economic outlook is whether falling home prices will lead to a pullback in household spending, and greater levels of household spending, carrying the potential to slow economic growth, increase unemployment and lead to ongoing weakness in wages growth.
No one, including policymakers at the Reserve Bank of Australia (RBA), is sure what impact the hit on household balance sheets will have on the broader economy.
There’s already clear evidence the housing downturn is spilling over into the residential construction market with building approvals falling sharply this year, especially for units.
The question many are now pondering is whether that the housing downturn’s influence will extend into household consumption, a significantly larger part of the Australian economy.
While that remains a risk, if the latest ANZ-Roy Morgan consumer confidence report is anything to go by, households don’t appear to be all that fussed about continued weakness in the housing market.
Confidence levels continue to improve, sitting well above the average level seen 1990.
The headline confidence index jumped 2.6% to 119.8 — the third weekly increase in a row — completely recouping all of the declines seen immediately after the Wentworth by-election in October.
As seen in the chart below from ANZ Bank, confidence is now well above the 113 average since the inception of the survey.
David Plank, Head of Australian Economics at ANZ Bank, says the improvement largely reflected improved sentiment towards current and expected household finances, as well as Australia’s medium and long-term economic outlook.
“Households perceptions of current financial conditions and future financial situation rose by 3.9% and 2.2% respectively… [with] views about current financial conditions close to the highest level seen since the GFC,” Plank said.
“At the same time, current and future economic conditions jumped by 7% and 4.5% respectively.”
Big moves, and hardly the kind of readings that suggest households are about to shut their wallets given ongoing housing market weakness.
While sentiment towards whether now is a good time to buy a household item did fall a touch, slipping by 3.1%, that comes with the disclaimer that it surged by more than 9% a week earlier.
Again, no real surprise given weakness in the housing market, but hardly a reason to worry about broader weakness in household spending yet.
“Last week’s RBA Statement on Monetary Policy was quite upbeat on the Australian economy. At the same time, the Bank’s message of no near-term hikes in the interest rate was reassuring for households,” he said.
“Sentiment might have received boosts from the recent easing in petrol prices and the rebound in equity markets.”
A rebound in the Australian dollar — a factor that some have speculated has influenced sentiment in the past — may have been another factor that helped boost confidence towards the Australian economy.
With both stocks and the Aussie dollar coming under pressure in the early parts of this week, whether the improvement can be sustained or built upon in the next survey will likely be determined by upcoming data on wage growth and unemployment in Australia.
At a time of weakness in the housing market, many suggest that faster wages growth and lower unemployment will be required to help sustain household spending levels in the quarters ahead.
Given the importance to confidence and spending levels in the future, these reports will undoubtedly attract a lot of attention in the days ahead.