- News that Australian unemployment fell below 4.9% failed to boost household confidence last week.
- Australian consumer confidence has fallen sharply in recent months, coinciding with a slowdown in consumer spending. The latter is the largest part of the Australian economy.
- Widespread reports about a potential US recession may have weighed on confidence levels last week.
- If confidence levels translate to continued weakness in household spending in Australia, it will increase the risk that unemployment may begin to increase.
News that Australia’s unemployment rate fell below 5% in February failed to boost confidence levels last week, a worrying outcome that will add to concerns that the spending slowdown seen in the second half of last year may continue for some time yet.
The ANZ-Roy Morgan Consumer Confidence Index dipped 0.1% to 111.8 last week, leaving overall confidence levels well below the series long-run average.
As seen in the chart below, sentiment levels have deteriorated sharply in recent months, reversing the trend seen throughout much of last year where confidence levels were significantly higher.
“The strong February labour market report, showing further modest jobs growth and a tick down in the unemployment rate, failed to lift sentiment,” said Felicity Emmett, Senior Economist at ANZ Bank.
“With persistent weakness in the housing market, and little good news from offshore, either on the economic or geopolitical front, households seem fairly downbeat. Whether this is a new normal or a temporary lull remains to be seen.”
The latest survey was conducted late last week, coinciding with widespread reports of an inversion of one part of the US yield curve for the first time since 2007, sparking renewed concern among investors about the potential for a looming US recession given this has often occurred before downturns in the past.
That may have contributed to the weakness in the latest survey, helping to offset any benefit from resilient job market conditions in Australia. It also hints that the broader Australian population, not just those actively involved in financial markets, are paying closer attention to what’s happening in the global economy.
Despite continued speculation about the potential for RBA rate cuts this year and further tax relief at Australia’s upcoming Federal budget, sentiment towards family finances continued to deteriorate last week. Views on current finances slipped 1.4% while those towards the year ahead fell by a larger 3.3%.
Perhaps impacted by growing concerns towards the global economy, sentiment towards the Australian economy in the year ahead also softened, declining by a further 0.1%.
However, views towards the economy looking five years ahead, and towards whether now was a good time to buy a household item, rose modestly during the week, albeit from depressed levels.
While the ANZ consumer survey is often volatile, it’s not pretty clear that confidence levels are now a lot weaker than what they were last year.
If that leads to continued caution among households, sluggish spending will likely drag on the broader Australian economy, an outcome that will increase the risk that unemployment may start to push higher in the quarters ahead.
The RBA has acknowledged that the outlook for household spending remains a key area of uncertainty for the Australian economy, especially as a time when home prices are falling in many parts of the country. High household debt levels and persistent weakness in incomes growth are other factors that have added to this uncertainty.
The bank has also acknowledged that a sustained increase in Australia’s unemployment rate is one outcome that could warrant a further reduction in Australia’s cash rate. It’s remained unchanged at 1.5% since August 2016.
Financial markets and an increasing number of economists see at least one reduction to the cash rate arriving this year.
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