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Tuesday 18

December, 2018 1:58 AM



Consumer Confidence

Consumer Confidence

The Westpac/Melbourne Institute survey of consumer sentiment index rose by 1.0 per cent to a reading of 101.5 in October.

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10.10.2018 03:53 PM

Record building work; Positive consumers
Consumer sentiment; Building activity

Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment index rose by 1.0 per cent to a reading of 101.5 in October. The sentiment index is in line with its long-term average of 101.5. A reading above 100 denotes optimism.

Home building: The number of dwelling starts fell by 5.9 per cent in the June quarter, after an upwardlyrevised 11.8 per cent lift in the March quarter. Currently, 230,573 homes are being built.

Record building: In the June quarter a record $74.3 billion of residential and commercial building work was yet to be done (completed). 

What does it all mean?

Aussie consumers remain positive despite softer housing markets, a weaker currency and high petrol prices. It seems that the strong job market and on-going super-low interest rates are enough to buoy spirits. Aussie men have become less positive over the past three months but their confidence levels still exceed those of Aussie women. And consumers in rural areas are more downbeat than their city cousins.

Think that the building boom is over? Actually the value of outstanding home building and commercial work has never been higher with $74 billion of projects to be completed. And that includes almost 230,000 homes that are currently in various stages of construction. In Victoria alone there are 50,000 apartments that are being built. It is clear that the building trades have plenty of work to go on with.

What do the figures show?
Consumer confidence

The Westpac/Melbourne Institute survey of consumer sentiment index rose by 1.0 per cent to 101.5 in October. The sentiment index is in line with its long-term average of 101.5. A reading above 100 denotes optimism. The survey of 1,200 people was conducted from October 1-5.

The current conditions index rose by 1.1 per cent and the expectations index rose by 0.9 per cent.

Four of the five of the components of the index increased in October:

• The estimate of family finances compared with a year ago rose by 2.6 per cent;

 The estimate of family finances over the next year rose by 0.6 per cent;

 Economic conditions over the next 12 months rose by 2.3 per cent;

 Economic conditions over the next 5 years fell by 0.3 per cent;

 The measure on whether it was a good time to buy a major household item rose by 0.1 per cent.

Housing outlook: A good time to buy a dwelling? The index fell by 0.9 per cent but is up 7.9 per cent over the year. And house price expectations fell by 7.4 per cent to be down by 27.9 per cent on a year ago.

Unemployment expectations: Unemployment expectations rose by 1.0 per cent in October but are down by 5.0 per cent over the year. 

Dwelling starts & work

Dwelling starts (commencements) fell by 5.9 per cent in the June quarter after an 11.8 per cent rise in the March quarter (previously reported as a 5.2 per cent increase).

House starts fell by 3.8 per cent while apartment starts fell by 7.5 per cent. Work started on 228,248 new dwellings over the year to June, up 3.1 per cent on the year but down from the record high of 234,179 dwellings in the year to December 2016.

Across Australia, starts in the June quarter fell in four states/territories: NSW (up by 0.9 per cent); Victoria (down by 20.4 per cent); Queensland (down by 13.6 per cent); South Australia (down by 20.8 per cent); Western Australia (down by 3.3 per cent); Tasmania (up by 3.1 per cent); Northern Territory (up by 3.8 per cent); and the ACT (up by 188.1 per cent).

In the year to June, dwelling starts were higher than the decade average in all the states & territories except for the Northern Territory (down 37.4 per cent), and Western Australia (down 22.3 per cent). Starts in NSW were 51.1 per cent above the decade average. Victorian starts were 33.6 per cent above the decade average with South Australia up 17.3 per cent; ACT up 15 per cent; Queensland up 11.7 per cent; Tasmania up 10 per cent.

A record 50,085 apartments are currently being built in Victoria.

In the June quarter a record $74.3 billion of residential and commercial building work was yet to be done (completed), up 12.9 per cent on a year ago.

The value of residential and commercial building work in the pipeline stood at $96.2 billion at the end of June, up 10.7 per cent on a year ago but down from a record $98.5 billion in March.

Across Australia, 229,081 homes are being built, down from a record 230,573 homes in March.

What is the importance of the economic data?

Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.

The Australian Bureau of Statistics releases data on dwelling commencements (starts) each quarter. The figures provide guidance on future construction activity. If construction begins on new houses or apartments, it signifies work for building trades.

What are the implications for interest rates and investors?

Council approvals to build new homes, offices and shops have eased from record levels, but it is clear that there is plenty of work to be done over the next year or two. And to the record amount of building, there are the growing number of infrastructure projects. There is a growing risk of price and wage pressures to emerge in the construction sector.

Prospects currently remain bright for building material companies. But forward-looking investors would envisage slowing demand for materials in a year’s time – in home building rather than commercial or engineering sectors.

CommSec doesn’t expect a change in interest rates until 2019.

Published by Craig James, Chief Economist, CommSec
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