Despite out-of-cycle mortgage rate increases from Australia’s largest banks, which saw expectations for further rate cuts from the RBA grow, it had no impact on Australian consumer sentiment levels last week.
According to the latest ANZ-Roy Morgan survey, sentiment levels rose by 0.1% last week, leaving the index at 113.4, fractionally above the series long-run average of 112.7. The rolling four-week survey average, something that strips out week-to-week volatility, also held above the series long-run average at 113.1.
Looking at the various survey components, there was a huge bounce in perceptions on whether now was a good time to buy a major household item, helping to offset modest weakness in family finances compared to a year ago and sentiment towards the outlook for the economy.
The full breakdown of the surveys subcomponents are found below.
- Financial situation compared to a year ago: 103.8 (-4.2%)
- Financial situation next year: 125.0 (0.0%)
- Economic conditions next year: 99.1 (-1.9%)
- Economic conditions next five years: 109.9 (-1.1%)
- Time to buy a major household item: 131.4 (+6.7%)
According to Felicity Emmett, co-head of Australian economic at the ANZ, weakness in perceptions towards family finances was likely reflective of higher mortgage rates to consumers, something that may weigh on sentiment amidst a slowdown in the housing market.
“Consumer confidence consolidated just above its long run average last week. Sentiment about current personal finances fell sharply, likely reflecting news of higher mortgage rates.
Household views about their own finances remain fairly solid though. It’s the economic outlook that worries them. For some time they have been without a positive narrative on the prospects for the economy. But a broadly stable unemployment rate over the past year, and the hope that Prime Minister Turnbull can deliver better medium term outcomes for the economy, are factors which look to have driven some improvement in households’ economic outlook.
The challenge will be to maintain this upward trend in an environment where the housing market looks to be slowing.”
While it’s clear that sentiment towards the housing market is now deteriorating, not only in the ANZ-Roy Morgan survey but other economic indicators such as auction clearance rates and the Westpac-MI consumer confidence survey, the breakdown from today’s report suggests that it is yet to impact on sentiment levels at present.
On face value, the 6.7% surge on whether now was a good time to buy a major household item indicates that when it comes to consumption, households are looking to spend more, not less, despite the increase in variable mortgage rates.
That certainly doesn’t fit with the idea that the rate increases announced by the big four banks will crimp sentiment and household expenditure, and adds to the case for the RBA to keep interest rates on hold when they next meet on November 3.