While the unexpected depreciation in the Chinese renminbi rattled financial markets last week, it was not enough to sap confidence among Australian consumers – it actually improved.
According to the the latest ANZ-Roy Morgan consumer survey confidence increased by 0.6% to 113.2 last week.
It was the highest reading since late June and left the index fractionally above its long-run average of 112.7.
While the gauge now sits at a multi-week high, the improvement was lumpy in nature with a huge lift in medium-term economic expectations offsetting weakness in the outlook for family finances in the year ahead, economic conditions over the next 12 months and whether now was a good time to buy a major household item.
The full breakdown of the surveys subsectors can be found below.
- Financial situation compared to a year ago 110.8 (+1.7%)
- Financial situation next year 123.9 (-1.4%)
- Economic conditions next year 92.7 (-2.4%)
- Economic conditions next five years 108.4 (+8.0%)
- Time to buy a major household item 129.9 (-1.8%)
According to Warren Hogan, chief economist at ANZ, the question now is whether the recent improvement can be sustained.
“Consumer confidence has crept up slowly in the past few weeks. While concerns around the Greek debt crisis and volatility in the Chinese equity markets worried consumers just a few weeks ago, confidence has remained broadly steady in the face of last week’s Chinese exchange rate devaluation, possibly due to the fact that the Australian dollar ended the week largely unchanged.
Whether this solid performance from confidence can be sustained is the question. Last week’s wages data from the ABS showed record low growth in wages. In an environment of low wages growth combined with a soft labour market, household income growth is likely to remain weak. This, in turn, will continue to provide a constraint on growth in household consumption.”
While Hogan’s points are valid – wages growth is probably growing at the slowest pace since the early 1990s recession while unemployment currently sits at a 13-year high – perhaps the most surprising outcome from the survey was that concerns surrounding China’s move to allow market forces to play a greater role in determining the level of the renminbi didn’t have an impact on overall sentiment levels.
Just over a month ago sentiment was being whipsawed in either direction based largely on news headlines related to the Greek bailout negotiations and movements in China’s stock market.
That seems to have dissipated for the moment and suggests local economic conditions, rather than news headlines related to developments in other nations, may now be playing a greater role in determining overall sentiment levels.