Australian consumer confidence is tanking

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Only a day after learning Australian retail sales fell unexpectedly in February, we’ve just received another worrying indicator on the mood of Australian households at present.

According new data from ANZ, consumer confidence hit the lowest level since October 2015 last week.

The group’s headline consumer confidence index, produced in conjunction with Roy Morgan, tumbled 2.4% to 111.1, leaving it below the survey’s long-run average of 112.9.

We’re not only the least confident that we’ve been in 18 months, but we’re now less confident that usual.

Source: ANZ

A worry, particularly as households have been entrusted to help boost Australian economic growth in the quarters ahead.

The survey’s four-week moving average — a better indication on the overall trend — also fell to 112.5, leaving it below historic norms for the first time since February last year.

And that was at a time when Australia’s largest trading partner — China — was being perceived by many to be on the verge of an economic meltdown.

Adding to concern, perceptions towards the economic outlook and family finances both deteriorated sharply.

“The fall in confidence was broad based, with four out of the five sub-indices recording declines,” said ANZ.

“Expectations for economic conditions for next year fell sharply, with the index falling by 5.4% to the lowest level this year.

“Households’ views towards their current finances fell by 2.8%, while the future finances index was down 2.1%.”

The current finances subindex is particularly noteworthy as it has a reasonable correlation with household consumption levels, the largest component within the Australian economy. It current sits at lows not seen since early 2015.

It also suggests that recent strength in Australian stocks and house prices has done little to boost confidence towards finances.

Collectively, we’re wealthier than ever on paper, yet we don’t feel confident about our financial position.

Source: ANZ

David Plank, head of Australian economics at ANZ, said that weak labour market conditions, along with moves to slow investor activity in Australia’s housing market, may have been behind the weakness.

“Underemployment in the labour market has ticked up recently and we may still be some way from a noticeable upturn in wages,” he says.

“This in turn is weighing on household income growth which we believe is one of the reasons behind the downward trend in consumer sentiment.”

Plank also said that the decline might also be a reaction to the recent announcement by the APRA to reign in investor lending that was announced on Friday, just before the survey was conducted.

Whatever the factor that drove the decline last week, Plank notes that confidence levels have now been falling for several months, perhaps explaining recent weakness in Australian retail sales.

And, given confidence also fell steadily in March, it doesn’t bode well for a recovery in retail sales when the ABS releases its March report in early May.

“If confidence continues to waver then it seems reasonable to expect additional impacts on consumer spending,” says Plank.

According to the ABS, retail sales turnover fell 0.1% in February, leaving the increase on a year earlier at just 2.7%, the weakest increase recorded in close to four years.

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