Australian consumer confidence surged to an 18-month high last week

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Australian consumer confidence jumped to the highest level seen in 18 months last week with the ANZ-Roy Morgan survey up 2%.

The gain, leaving the index at 116.3, was driven by an improved perception on the outlook for the Australian economy. Views for the economy in the year ahead jumped 5.7% while looking out five years increased 4.6%. In what is an encouraging sign for consumer spending in the period ahead, the survey’s subindex on whether now is a good time to buy a major household rose by 2.1% to the highest level seen in the past two years.

ANZ chief economist Warren Hogan believes consumer confidence is now in a clear uptrend:

“Consumer confidence reached an eighteen month high last week and is now clearly on an upward trend. Importantly, the sub components of the index relating to the economic outlook, which had previously been very weak, are rising strongly. In our view this is because of improving labour market conditions and reduced anxiety about job security and employment opportunities.

In recent years interest rates and asset prices have had very little impact on trends in consumer confidence. It has been concerns about the labour market, incomes, and political leadership which have been driving factors.

What is critical now for the Australian economy is this emerging consumer confidence to be sustained and translated into steady consumer demand and ultimately business confidence. The May Retail Sales report will be released by the ABS on Friday and will be closely watched by markets. Looking to the second half of the year, the state of labour demand and the level of unemployment will be central to the outlook for the economy and economic policy.”

The full breakdown of the survey’s sub-components is found below.

  • Financial situation compared to a year ago 106.9 (-1.2%)
  • Financial situation next year 123.9 (+0.2%)
  • Economic conditions next year 98.6 (+5.7%)
  • Economic conditions next five years 109.2 (+4.6%)
  • Time to buy a major household item 143.0 (+2.1%)

While confidence is certainly on the rise, one can’t help but think the developments in Greece last week contributed to the rise. A debt deal was going to be be sealed between the nation and its creditors which, as a consequence, would help the global economy. Now, only a few days later, that clearly is in doubt. It will be interesting to see how confidence has been impacted by recent developments in Europe, particularly on sentiment towards the economy.

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