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Consumers wary, but still spending

Consumers wary, but still spending

The weekly ANZ/Roy Morgan consumer confidence rating eased 2.2 per cent from 111.7 to a near 12-month low of 109.2 in the week to August 20. Consumer confidence data is important for retailers.

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22.08.2017 03:36 PM

Consumers wary, but still spending

Consumer sentiment

Consumer confidence eases: The weekly ANZ/Roy Morgan consumer confidence rating eased 2.2 per cent from 111.7 to a near 12-month low of 109.2 in the week to August 20. Consumer confidence data is important for retailers.

What does it all mean?

Consumer confidence fell further in the past week to the lowest levels in almost a year. Why the gloom? Well, data showed wage growth remaining near 2 per cent, well below the levels of a few years ago. Still, data in the past week showed the job market to be in good shape with job growth in the past five months the best for an equivalent period in 12½ years. Consumer confidence is also tied to the fortunes of the Aussie dollar and the currency has backed away from US80 cents.

Aussie consumers are fretting about slower wage growth, rising energy bills and higher healthcare costs. Of course at the same time the affordability of a rash of spending categories has improved such as food, clothing, travel and transport.

Consumers may say they are gloomy, but importantly they are still spending. It’s a case of watch what they do, not what they say. Real retail trade posted the best growth in the June quarter for any June quarter in the past eight years. At the same time, measures of economy-wide spending continue to show firm growth. Certainly if consumer spending was slowing, this would be reflected in business conditions and confidence – but both those metrics remain strong.

One key positive in the past week – the measure of whether it was a good time to buy a major household item rose to +35, above the long-term average of +33.

What do the figures show?

Consumer sentiment

The weekly ANZ/Roy Morgan consumer confidence rating eased 2.2 per cent from 111.7 to a near 12-month low of 109.2 in the week to August 20. Confidence is down 10.3 per cent over the year and below the average of 113.2 since 2014.

Four of the five components of the index fell in the latest week:

The estimate of family finances compared with a year ago was down from +5 to +3;

The estimate of family finances over the next year was down from +23 to +16;

Economic conditions over the next 12 months was down from -5 to -6;

Economic conditions over the next 5 years was down from +5 to -2;

The measure of whether it was a good time to buy a major household item was up from +30 to +35.

What is the importance of the economic data?

The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

What are the implications for interest rates and investors?

Consumers say that they aren’t overly confident at present. But they are still spending. Whilever wage growth is exceeding price growth then consumers will spend.

Retailers need to watch measures of consumer sentiment but not unduly worry about survey results.

Originally published by Craig James, Chief Economist, CommSec
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