Consumer confidence points to a strong Christmas retail season

Source: Shutterstock

Having hit the highest level seen since January 2014 in early November, confidence among Australian households fell fractionally last week with the latest ANZ-Roy Morgan consumer confidence index slipping 0.6%.

While the first fall in three weeks, the index currently sits at 115.9, above its long-run average of 112.7.

Having been bolstered in recent months by improved perceptions towards the economic outlook, the declines were led by weaker readings towards the economy, suggesting the Turnbull government’s honeymoon period with Australia’s electorate may be coming to an end.

Perceptions towards the economy in the year ahead fell 3.7%, outpacing a 2.4% drop in those looking five years ahead. Elsewhere sentiment towards family finances came in mixed. Compared to a year earlier perceptions were weaker, falling 1.0%, although this was more than mitigated by a 3.4% surge in expectations for the year ahead.

Perhaps reflective of the mixed readings on the economy and family finances, the measure on whether now was a good time to buy a major household item came in flat.

Although sentiment levels weakened fractionally, ANZ chief economist Warren Hogan believes the result is a good sign for the upcoming Christmas retail season.

While consumer confidence fell last week, levels remain elevated and well above their long run average. This is a good sign ahead of the critical Christmas retail season.

Households remain confident in the new government as shown in recent news polls. The improvement in views about future finances likely reflect last week’s employment data and the fall in the unemployment rate below 6%.

While momentum in the economy appears solid at the moment, further softening in the housing market could be a challenge for confidence in the months ahead. It is too early too ascertain whether last week’s terrorist attacks in Paris and Beirut have had an impact. We will need to wait for next week’s result.

Interestingly, the fall in confidence came despite the survey capturing the bumper Australian jobs report for October released Thursday last week, something that revealed employment increased by nearly 60,000 persons leaving the unemployment rate at a 17-month low of 5.9%.

Despite questions about its reliability, it saw many prominent economists change their view that the RBA will continue to cut interest rates in the first half of 2016. While ANZ remain of the view that the RBA will cut the cash rate to 1.50% by the end of the June quarter next year, down 0.5% from its current level of 2.00%, the change in the rate outlook may have contributed to the small decline in confidence recorded last week.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.