Australian retailers just received an early Christmas present

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Australian consumer confidence moderated slightly last week with the latest ANZ Roy Morgan consumer confidence index slipping 0.8% to 115.4. Despite the small decline, the index remains above its long run average of 112.7.

ANZ note that the decline was “relatively broad based” with perceptions towards the economic outlook and household finances, both looking back and forward, deteriorating fractionally during the week.

But it’s not all bad news. Australians are ready to spend on home improvements.

In what is a promising sign for the Christmas shopping period, the only component to register an increase came from whether now was a good “time to buy a major household item”, rising 3.4%. Indicating that retailers may enjoy solid festive trading, the index is 4.7% higher than a year ago.

The full breakdown of the survey’s subcomponents can be found below.

  • Financial situation compared to a year ago 106.5 (-2.7%)
  • Financial situation next year 125.8 (-2.4%)
  • Economic conditions next year 99.5 (-2.4%)
  • Economic conditions next five years 110.0 (-0.3%)
  • Time to buy a major household item 135.3 (+3.4%)

According to Felicity Emmett, co-head of Australian economics at the ANZ, the slight deterioration in sentiment may have been caused by renewed focus on the federal budget.

Here’s Emmett.

Consumer confidence fell modestly last week, but remains well above levels seen last Christmas. Stronger employment growth and a falling unemployment rate are likely supporting confidence at above-average levels, although news around the Government’s Mid-Year Economic and Fiscal Outlook perhaps weighed slightly on sentiment this week.

The MYEFO is likely to show a deterioration in the Budget’s underlying cash balance as falling commodity prices and lower potential economic growth hit revenue projections. What will be important for consumer confidence going forward, however, will be how the Turnbull government responds to the deterioration in the fiscal outlook. In the near term, though, the strength in the labour market is likely to keep consumer confidence elevated.

Although there have been questions over the strength of recent labour market data released by the ABS, it’s clear that Australian labour market conditions have improved steadily over the second half of 2015. Obtaining employment, or feeling more confident about your job security, will likely trump any negativity that may or may not arrive from a slightly wider budget deficit.

On that basis, the assumption from ANZ that sentiment is likely to remain elevated over the near term not only appears warranted but likely.

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