Title : 'Surprisingly strong' consumer confidence at four-year high
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'Surprisingly strong' consumer confidence at four-year high
Although consumer confidence has jumped to a four-year high in the lead-up to Christmas, there are no guarantees this will translate into more spending.
Key points:
- Consumer sentiment lifted 3.6pc to 103.3, meaning optimists outnumber pessimists
- Confidence about family finances is likely to be connected with an improving labour market
- Westpac predicts the Reserve Bank won't raise interest rates until 2019
This is due to slow wages growth, a low savings rate and high household debt levels, according to Westpac and the Melbourne Institute in their latest monthly consumer report.
Sentiment rose 3.6 per cent to 103.3 points in December — a result which improves on its November result (99.7) and a slump in consumer spending during the September quarter.
A result above 100 points means, out of the 1,200 people surveyed for the report, there were more optimists than pessimists.
"This is a surprisingly strong result and confirms the lift we have seen in the index over the last three months," said Westpac's chief economist Bill Evans.
These findings come after NAB's business survey out yesterday revealed a sharp drop in business conditions.
Why did consumer confidence rise?
Mr Evans believes a "less threatening outlook for interest rates" is one reason behind the boost in confidence.
"During that September quarter households were spooked by media and many commentators saying that interest rates were likely to start rising in the new year," he said.
"That effect has now calmed down significantly."
In fact, Westpac's position is that the Reserve Bank is unlikely to raise interest rates until 2019.
Mr Evans suggested recent developments in Australian politics are other reasons behind the bounce in consumer confidence.
In particular, he said there was probably a "feelgood effect" for consumers after the Federal Government passed marriage equality legislation last week.
This was in addition to the speculation that the Government may introduce personal and business tax cuts next year.
The Commonwealth Bank welcomed the latest consumer confidence results.
"Household spending accounts for around 60 per cent of the economy," said CBA senior economist Kristina Clifton.
"So households being able to maintain a decent rate of spending growth is a key requirement for the economy to be able to meet our and the RBA's forecasts for GDP growth of 3 per cent over the coming years."
Time to buy property?
Another area of improvement was the "time to buy a dwelling" index, which has risen slightly over 100 (by just 0.6 points), a one-year high.
In this case, a result above 100 means consumers think it is a good time to buy real estate.
But the results varied significant from state to state — with Queenslanders (121) and Western Australians (122) being the most optimistic.
On the other end of the spectrum were NSW (90) and Victoria (88), the nation's most expensive property markets.
Also, despite the well-known issues of low wage growth in Australia and a recent surge in petrol prices, confidence in family finances rose to 89.6 this month (up from 84.8 in November).
Capital Economics economist Kate Hickie believes this may be due to "the continued strength of the labour market".
After all, the "unemployment index" within the Westpac-Melbourne Institute report fell from 130.8 to 127.6.
This appears to be "consistent with the unemployment rate nudging down from 5.4 per cent to closer to 5 per cent," Ms Hickie said.
So what is the key take-out from all of this?
"The leap in the Westpac measure of consumer confidence in December will be a welcome sight for retailers in the middle of the all-important Christmas shopping period," she said.
"Nonetheless, with household budgets still tight, we remain cautious about the outlook for consumption growth."
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