Last week Australia’s December quarter GDP report was released, revealing a solid increase in GDP of 1.1%.
Seemingly good news, but it wasn’t enough to lift the spirits of households — it tumbled, led by a sharp deterioration in sentiment towards their finances.
The weekly ANZ-Roy Morgan consumer confidence index slumped 4.4% to 113.9, largely reversing a similarly large increase seen in the previous week.
The survey’s 4-week moving average — deemed to be a better gauge on sentiment levels as it dampens weekly volatility — fell to 115.8 as a consequence, the lowest level since December last year.
While a disappointing outcome, it must be remembered that the index still remains above its long-run average of 112.9, meaning overall confidence levels, despite the recent slump, are still above historic norms.
And, as seen in this chart from the ANZ, the survey has been highly volatile so far in 2017.
“While consumer sentiment remains above its long run average, the uptrend has clearly lost momentum in a period of unusually high volatility in survey responses,” said David Plank, head of Australian economics at ANZ.
He put the weakness down to concerns over weak wage growth, along with renewed warnings on Australia’s housing market.
“The ongoing weakness in wage growth has likely weighed on consumers’ perception of their finances — with the GDP report last week showing growth in wages remained lacklustre in Q4,” says Plank.
“Last week’s report from the OECD that rising house prices are a threat to the Australian economy may also have unnerved households.”
Whether due to those factors or not, the survey’s measures on finances fell heavily during the week.
“Households’ views of current finances fell a sharp 8.6% last week while sentiment towards future finances also deteriorated, down a sizeable 6.2%,” Plank said.
Mirroring the slump in those measures, the survey’s ‘good time to buy a household item’ sub-index fell 6.5%, leaving it at the lowest level since early December 2016.
Perhaps reflective of the strong rebound in GDP, more than reversing the 0.5% contraction of the September quarter, views towards the economic outlook were mixed with near-term sentiment rising 1.2%, offsetting a 0.4% drop in perceptions looking five years ahead.
While a slightly surprising outcome, Plank says that confidence levels are likely to remain resilient, “supported by solid economic fundamentals and an accommodative monetary policy stance”.