Australia's weak labour market is starting to drag on consumer confidence

SERGEI GAPON / AFP / Getty Images

Australian consumer confidence fell fractionally last week, a slightly disappointing outcome given strength seen in Australian stocks over the same period.

The latest ANZ-Roy Morgan consumer confidence index slipped 0.1% to 115.4, taking the decline from the multi-year peak of 121.8 seen in late September to 5.3%.

Despite the recent weakness, confidence still remains above its long-run average of 112.8.

“This likely reflects consumers’ concerns over the recent loss of momentum in labour markets, with the pace of employment growth slowing, and persistently low wage growth,” said Felicity Emmett, head of Australian economics at ANZ.

That fits with the sentiment expressed by households towards their family finances with the subindices measuring both current and future finances slipping during the week.

“Households’ views of their finances compared to a year ago fell 1.5% last week, largely reversing the gain over the previous week,” said Emmett. “Meanwhile, households’ view of their future finances dropped 0.9%.”

Those declines were almost entirely offset by improved sentiment towards the economic outlook.

Sentiment towards the year ahead rose by 0.7% while looking five years into the future jumped by 3.1%.

The final component within the survey — whether now was a good time to buy a major household item — fell for a third consecutive week, posting a drop of 1.2%.

A disappointing outcome in the lead up to Christmas, and one that fits with recent analysis from Westpac that revealed Australians were planing to spend less this Christmas than what they did in 2015.

Despite recent weakness, Emmett says that with confidence remaining above its long-run average, the recent acceleration in retail sales will likely be maintained when the ABS releases figures for October later in the week.

“After an earlier soft patch, momentum in retail sales has picked up over the past two months, and with confidence still elevated we expect this week’s retail data to show another solid rise,” she says.

However, she tempers that optimism over the medium term, suggesting that “whether that momentum can be sustained will likely depend on developments in the labour market.”

In recent months, employment growth has slowed to a crawl while wage growth posted the slowest annual increase on record in the September quarter.

Underemployment also sits at record highs, leading to slower household income growth.

This, in turn, is likely dampening household consumption levels, and is likely keeping a lid on confidence levels despite booming house price growth in Australia’s eastern capitals.

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