Australian consumer confidence rose fractionally in September, according to the latest Westpac-MI consumer sentiment survey.
The survey’s headline index rose by 0.3% to 101.4, indicating that optimists outnumber pessimists, albeit by a small margin.
It continues a trend of remarkable stability in confidence levels, something that Westpac’s chief economist, Bill Evans, noted following today’s release.
“Consumer Sentiment has been remarkably stable for the last six months. Over that period the Index has averaged 100.3 so today’s reading is just 1.0% above this average,” he said.
“Indeed the September reading is just 1.7% above the average reading over the previous six month period to March as well.”
“This stability over the last six months has been despite significant events that can usually be expected to impact confidence: two interest rate cuts from the Reserve Bank and associated reductions in mortgage rates; a Commonwealth Budget; a Federal election; and some major developments offshore such as the surprise UK referendum result (‘Brexit’) and the build -up leading into November’s US election.”
That stability in the index is captured in the chart below.
According to Evans, the likely reason behind the stability in the index comes down to what consumers are reading, listening and watching in the media in recent months.
“A year ago the most recalled news items were around ‘economic conditions’ (53.9% of respondents) and ‘international events’ (41.8% of respondents). Recall on these topics is now down to 21.9% and 11.4% respectively.
“Not surprisingly, the news is assessed to be considerably less unfavourable today than last year.
“The most recalled news category in September was ‘Budget and taxation’ (26%). News on this category has been assessed as more unfavourable than in June but still less unfavourable than a year ago.”
Breaking down the September survey, it was clear that the lift in the headline index was not uniform in nature.
This is no better demonstrated than in the table below from Westpac which looks at movements in the survey’s five subindices, both from a monthly and annual perspective:
Views on current family finances improved, offsetting a deterioration in sentiment in the year ahead. On the economy, consumers expect economic conditions to weaken in the year ahead, but expect things to improve over the longer term.
The final component — whether now is a good time to buy a a major household item — rose strongly, continuing the trend seen throughout the past year.
While most components have improved over the past 12 months, it’s noticeable that perceptions towards current finances, along with the economic outlook, are dominated by pessimists.
Outside of the survey’s main components, Westpac notes that views on the labour market continued to improve, perhaps due to the reasonable jobs report released for July.
The unemployment expectations index “fell from 141.2 in August to 138.4 in September,” said Evans. A lower reading indicates that fewer respondents expect unemployment to rise in the year ahead.
“The index is now down 11.5% over the last year and 10.5% since September 2014. The index was stubbornly high through 2012- 2015 so it is very encouraging that confidence seems to be gradually returning to the jobs market,” he said.
There was also mixed views on the housing market with the survey’s “time to buy a dwelling” index falling 2.5% while the separate house price expectations index rose by 3%.
Despite the divergence, Evans suggests that “confidence in the housing market is improving”.
On other forms of investment, consumers nominated bank deposits as the wisest form of saving right now, suggesting that investors, collectively, remain nervous.
“Most respondents still see bank deposits as the wisest form of saving. That proportion compares to the 40yr peak of 39% in 2012 when risk aversion was much higher,” notes Evans.
“A second measure of risk aversion is the component ‘pay down debt’. That proportion increased from 20.0% to 21.0% and compares with record high of 27% in 2010.”
Elsewhere, “the proportions favouring ‘real estate’ (15.4%) and ‘shares’ (8.6%) remained steady in September”.
Though largely unchanged from the levels seen in August, the preference to save and pay down debt, rather than invest in riskier asset classes, perhaps explains the weakness in retail sales and household consumption figures seen in recent months.
Following the release of the separate ANZ-Roy Morgan Australian consumer confidence index on Tuesday, Felicity Emmett, head of Australian economics at the ANZ, noted that recent strength in confidence levels “did not translate into stronger consumer spending in Q2″.
“Consumption has been a key driver of the non-mining recovery and this step down in growth is somewhat concerning, and something we will be closely watching over the next few months,” she noted.
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