Consumer Confidence

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<p><span>GUEST OBSERVER</span></p>
<p><span>The ANZ/Roy Morgan consumer confidence rating fell by 3.6 percent to 113.6 in the week to October 23. </span></p>
<p><span>The index is still above the average of 112.8 since 2014. </span></p>
<p><span>The consumer confidence figures have implications for finance providers, retailers, and companies dependent on consumer and business spending. </span></p>
<p><span>What does it all mean &amp; what are the implications?</span></p>
<p>It seems like the latest jobs data has made Aussies a little more guarded about the economic outlook. Full-time jobs reportedly fell by 53,000 in September with part-time jobs up by 43,200. It is unlikely that these moves actually occurred – the data reflects the vagaries of monthly seasonally adjusted estimates. Still, positively, unemployment was at a 3-year low of 5.6 percent in the latest month.</p>
<p>Overall though, consumer confidence remains above average including estimates of personal finances and the outlook for finances. Employment data is also backward-looking. Indicators of job ads and job vacancies have been rising – pointing to stronger employment ahead.</p>
<p>What do the figures show?</p>
<p>Consumer confidence</p>
<p><span></span><span>The </span><span>ANZ/Roy Morgan consumer confidence rating </span><span>fell by 3.6 per cent to 113.6 in the week to October 23. The index is still above the average of 112.8 since 2014. Four components of the index fell in the latest week and one component was flat: </span></p>
The estimate of family finances compared with a year ago was unchanged at +9;</div>
<div class="column">The estimate of family finances over the next year was down from +30 to +21;</div>
<div class="column">Economic conditions over the next 12 months was down from +3 to +0;</div>
<div class="column">Economic conditions over the next 5 years was down from +11 to +6;</div>
<div class="column">The measure of whether it was a good time to buy a major household item was down from +35 points to +32 points.</div>
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<div class="column">What is the importance of the economic data?<br><p><span> </span><span>The ANZ/Roy Morgan weekly survey of consumer confidence </span><span>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. </span></p>
<p><span><em>Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.</em></span></p>
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jchancellor-FAypfDUnLy

Consumers are more guarded on economy: CommSec's Craig James

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<p>GUEST OBSERVER</p>
<p>The NAB business survey reported that business conditions remained elevated in July and that business confidence increased. The survey was conducted from July 25 to 31.</p>
<p>In July, the conditions index rose 1pt to +15. This is well above the long-run average for this series, of +1 (dating from 1989), but below the highs of 2007 ahead of the GFC.</p>
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<p><img src="https://www.urban.com.au/images/2017/08/09/Screen%20Shot%202017-08-09%20at%208.14.38%20AM.png" alt=""></p>
<p>The components of business conditions for July were: trading conditions down 1pt to +20; profitability up 4pts to +18; and employment conditions held onto earlier gains, steady at +7.</p>
<p>Business confidence moved higher, up 4pts to +12. Business confidence has improved since 2016, mirroring the global trend, and is at above average levels, although it continues to trail actual conditions.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/08/09/Screen%20Shot%202017-08-09%20at%208.15.52%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/08/09/Screen%20Shot%202017-08-09%20at%208.15.52%20AM.png" alt=""></p>
<p>How to interpret the survey?</p>
<p>The elevated level of the business conditions index is overstating actual conditions across the broader economy, as it has tended to do since the GFC.</p>
<p>Directionally, the survey suggests that the Australian economy is experiencing a trend improvement in underlying conditions after the slowdown in mid-2016, associated with the July Federal election.</p>
<p>The official data was mixed early in 2017, impacted by weather disruptions. More recently, partial indicators have improved (retail sales, exports, jobs), lending support to our view that the economy will rebound in 2017 from these temporary disruptions, although consumer spending is likely to be constrained by weak wages growth.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/08/09/Screen%20Shot%202017-08-09%20at%208.17.09%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/08/09/Screen%20Shot%202017-08-09%20at%208.17.09%20AM.png" alt=""></p>
<p>On employment growth, the previously weak official data has fallen into line with the positive signal from the private business surveys, meeting our expectations. The survey suggests that the recent trend improvement in employment will be sustained in coming months.</p>
<p>On investment, the outlook is less certain, with the survey’s capex measure pulling back in July.</p>
<p>By industry, a strengthening of conditions in 2017 relative to 2016H2 is evident in: construction; manufacturing; and mining. Construction has strengthened on an upswing in public investment; a lift in commercial building; elevated home building activity (ahead of a 2018 downturn); and the waning of the mining investment drag. Mining is enjoying better cash flows associated with higher commodity prices. Manufacturing is benefitting from strength in construction, mining, agriculture and the lower AUD. Positive spillover effects are also evident in wholesale and in transport &amp; utilities.</p>
<p>Retail conditions reportedly dipped in July, possibly in part due to a mild winter, with Sydney experiencing its 2nd warmest July on record. Official data reports that real retail sales jumped in Q2, up 1.5%, after a weather disrupted 0.2% gain in Q1. The uncertainty is around the strength of consumer spending over the second half of 2017 and beyond.</p>
<p>By state, business conditions for July are positive in all states, with the exception of WA. Trend conditions are most favourable in the major non-mining state of NSW and Victoria. In NSW conditions jumped in July, to +22, possibly in part due to unseasonably mild and dry weather conditions. Looking through month to month volatility, the improvement in overall conditions between 2016H2 and 2017H1 is largely driven by the mining states of WA and Qld, as well as SA. </p>
<p><span>Andrew Hanlan is senior economist for Westpac and can be contacted </span><a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/andrew-hanlan/3/222/430" target="_blank">here</a><span>. </span></p>
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July conditions elevated, confidence lifts: Andrew Hanlan

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<p>GUEST OBSERVER </p>
<p>The RBA expanded on its reinstated easing bias, noting that it was waiting for inflation, housing and labour market data that would feed into the staff’s updated economic outlook.</p>
<p>Brexit has spilled over into lower Australian bond yields, but the RBA downplayed its potential economic effect on Australia.</p>
<p>We narrowly favour a 25bp rate cut to 1.5 percent in August given low underlying inflation and with the labour market losing momentum. We are surprised that increased uncertainty has not materially dented confidence, but there could be a delayed impact given job ads are down sharply in early July.</p>
<p>We view S&amp;P’s recent decision to lower Australia’s credit rating outlook to negative as a downside risk to growth.</p>
<p>DETAILS</p>
<p>The RBA reinstated an easing bias in July and the minutes made it clear that the bias hinged on inflation, housing and labour market data. The minutes said that “further information on inflationary pressures, the labour market and housing market activity would be available over the following month and that the staff would provide an update of their forecasts ahead of the August Statement on Monetary Policy ... [which] would allow the Board to refine its assessment of the outlook ... and to make any adjustment to the stance of policy that may be appropriate”.</p>
<p>Since the meeting, employment rose more slowly in June, up 8K, which confirmed that jobs growth has slowed sharply this year. The unemployment rate ticked up to 5.8 percent, after holding at 5.7 percent for the preceding three months.</p>
<p>The CPI is due on 27 July and we expect underlying inflation to stay weak, with the average of the trimmed mean and weighted median CPIs expected to rise by 0.4 percent in Q2 or by 1.4 percent over the year. June building approvals are due the same day as the 2 August cash rate decision and fell 5 percent in May.</p>
<p>The RBA was not fazed by Brexit. The RBA viewed Brexit as a successful market stress test in the wake of regulatory reforms introduced after the global financial crisis, where lower global bond yields had spilled over to Australia. The board believed it was too soon to judge the effect of Brexit on the UK economy, which would be tempered by the depreciation of the GBP. The staff anticipated a “modest adverse effect” on global growth, absent a significant financial dislocation. The board noted that the direct effect of Brexit on Australia was “likely to be quite small” given limited trade links.</p>
<p>The RBA seems slightly less confident about the domestic outlook. The RBA thought that the handover from the mining sector to the rest of the economy is “well advanced”, with recent data pointing to modest growth in Q2.</p>
<p>Positive surveyed business conditions were seen as consistent with some signs of life in non-mining business investment. However, to us the RBA seemed slightly less sure about the outlook in that it noted that indicators for consumer spending and the housing market had been mixed and that the underemployment rate had not fallen as much as the unemployment rate over the past year. The RBA also highlighted that all measures of inflation expectations were below average.</p>
<p>The Board repeated its warning than an appreciating exchange rate could complicate the outlook. The exchange rate was USD0.75 at the time of the July meeting, consistent with the assumption underpinning the RBA’s last set of economic forecasts. The AUD subsequently rose to about USD0.7650, but has recently eased to about USD0.7525.</p>
<p>OUTLOOK</p>
<p>We still narrowly favour a rate cut in August. We expect a 25bp rate cut to 1.5 percent given we expect underlying inflation to remain low in Q2, while the labour market has lost momentum this year (consensus: 1.5 percent; market pricing: 1.61 percent).</p>
<p>We also view S&amp;P’s recent decision to lower Australia’s credit rating outlook to negative as a downside risk to activity given it could either trigger further fiscal consolidation or lead to a downgrade to the actual rating that would likely place pressure on bank funding costs. We have been surprised that the spike in market volatility and increased uncertainty has not materially dented confidence – consumer confidence is down 3.3 percent over the past four weeks, while business confidence actually rose in June – but there may be a delayed reaction in that we estimate that job ads are down sharply in early July.</p>
<p>The fact that the easing bias mentioned housing and labour market data rather than just the CPI is unusual given the monthly stats can be volatile, but this suggests to us that the RBA may be giving itself some leeway with the Q2 CPI result as it also weighs up the state of the property market, while interpreting the labour market as a timely read on the broader economy. </p>
<p><em>Kieran Davies is an economist for ANZ and can be contacted <a href="https://www.anz.com/personal/" target="_blank">here</a>.</em></p>
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RBA expands on its easing bias: ANZ's Kieran Davies

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<p class="post-title entry-title">EXPERT OBSERVER</p>
<p class="post-title entry-title">Very few cases of COVID-19 in Australia, with a handful of cases returning from overseas and headed to quarantine. </p>
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<br><div>Recoveries continue to comfortably outstrip new cases.</div>
<br><div>And, importantly, we're consistently seeing zero deaths reported on a daily basis, with few serious cases even going as far as ICU. </div>
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<br><div>There are 5 cases remaining in ICU nationally, against the expanded capacity of 7,500 beds.</div>
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<div><strong>Confidence returning</strong></div>
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<div>Consumer confidence increased for an 8th consecutive week, up by +0.4 per cent to a reading of 92.7 points according to ANZ-Roy Morgan.</div>
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<div>Future financial conditions gained by +3.2 per cent and is approaching its long term average reading.</div>
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<br><div><span><em>Source: ANZ-Roy Morgan</em></span></div>
<br><div>Credit card usage data shows that Aussies are willing and able to spend again, but realistically travel restrictions needs to be eased before the economy can begin to fire up properly.</div>
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<strong>PETE WARGENT</strong><em> is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.</em>
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Confidence up for 8th consecutive week: Pete Wargent

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<p><span>Confidence means a lot to real estate markets. And it’s been a long time since Australian real estate has had such a concerted shot in the arm as on Tuesday this week.</span></p>
<p>Against the predictions of virtually every economist in the land, proving yet again how little they understand, the RBA dropped its official interest rate to depths not seen before. Most of the major lenders have dropped their mortgage rates accordingly.</p>
<p>The same economists who incorrectly predicted the RBA board’s decision will also tell you that record low interest rates equals a property boom. Goodness knows where that comes from – certainly not from any historical precedent and certainly not from the experience of recent years where only Sydney has had a market worthy of being described as a boom (no, not even Melbourne’s performance warrants the boom tag).</p>
<p>I note that RBA Governor Glenn Stevens doesn’t see the rate cut reigniting boom scenarios. "In reaching today's decision, the board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate," he said in a statement. "At present, the potential risks of lower interest rates in this area are less than they were a year ago."</p>
<p>So I don’t expect the rate cut, replicated by three of the four major banks, to generate anything dramatic in the market. But it will generally help the psyche of property consumers. And the next affordability index will likely show a further improvement.</p>
<p>On the same day, Federal Treasurer Scott Morrison delivered his first Budget, which reiterated strongly that negative gearing won't change, nor will investors be slugged more on capital gains tax.</p>
<p>“We will not remove or limit negative gearing,” Morrison said in his Budget speech. “Those earning less than $80,000 make up two-thirds of those who use negative gearing. They are teachers, nurses, police officers, office workers and tradesmen. We do not consider that taxing them more on their investments is a plan for jobs and growth.”</p>
<p>Amen to that. The tragic thing about those who justify their anti-gearing stance on the grounds that it’s all about housing affordability is that scrapping negative gearing won’t make housing cheaper. Even Bill Shorten says it won’t force down the value of homes, therefore affordability won’t improve. Shorten, like so many others, doesn’t understand the affordability issue and is targeting the wrong culprits.</p>
<p>Another event on Tuesday was publication of building approvals data which showed there’s still some life in building approvals, although the monthly bounce may be an aberration because the longer-term trend is down (from record high levels, it must be said).</p>
<p>This closely followed the release of price data for April, which shows that the home value index has risen in the past three months of the year in seven of the eight capital cities.</p>
<p>That includes a 3.9% rise in Sydney. That would tend to rubbish claims of a collapse in values and a bursting of the bubble. I say “tend” because this is one set of figures from one source and it’s not uncommon for another major source to publish figures that are largely contradictory.</p>
<p>Based on the CoreLogic numbers, however, Adelaide’s prices rose 4.5% in the past three months and Brisbane was up 2.8%. I’ve been predicting good growth in those two cities, but I’m not getting overly excited because of what I said in the previous paragraph.</p>
<p>But, according to these figures, even Perth and Darwin showed glimmers of price growth in the latest quarter.</p>
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Going against economists show how little the RBA understands:Terry Ryder

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<p>EXPERT OBSERVER</p>
<div>Consumer confidence rose +1.2 per cent last week to 93.5, according to ANZ-Roy Morgan, a 13-week high.</div>
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<div>However, confidence levels remain well below the monthly average since 1990 of 112.6, and even still a reading of 93.5 is equivalent to what Australia experienced through the financial crisis. </div>
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<div><em>Source: ANZ-Roy Morgan</em></div>
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<div>On March 29 the COVID shock saw consumer confidence reading hit the lowest level in half a century at 65.3, but it has since rebounded by 43 per cent. </div>
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<div>Curiously confidence levels in Melbourne have picked up this week to a level 'a touch below neutral' -  possibly on optimism of restrictions being eased - and confidence levels in Melbourne are now higher than in Sydney. </div>
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<div><strong>RBA update</strong></div>
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<div>The RBA put out some state level payroll jobs figures this week which showed that jobs have been steadily picking up elsewhere, but not in Victoria. </div>
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<p>However, the payrolls recovery has stalled this week, and indeed it cannot really take hold until the Victorian economy sees restrictions broadly eased. </p>
<div>Separate analysis from UBS highlighted how small businesses have disproportionately felt the pain this year, and this is reflected in hiring figures relative to large businesses. </div>
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<div>This has raised the prospect of a potential further reduction of interest rates, as discussed today by the RBA’s Guy Debelle.</div>
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<div>The RBA has now expanded its balance sheet significantly, almost doubling from from $170 billion in February to $300 billion, through its various policy measures. with a further 'decently large' expansion to come. </div>
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<div>In the money markets swap rates are now at record lows. </div>
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<div>Banks are now allowing their offshore funding to roll off, which has reduced the share of offshore bonds funding, and this has been replaced by take-up of the cheaper Term Funding Facility (TFF). </div>
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<div>It's interesting to note that the Chinese economy has come surging back from its 10 per cent decline in the March 2020 quarter, to the extent that its output is now greater than it was at the end of 2019, as targeted stimulus measures have successfully bolstered production.</div>
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<div>Australia has gone down a different route, focusing instead on income support, to the extent that household income actually <em>increased</em> over the previous quarter, which is a very unusual outcome for a recession.</div>
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<div>This was driven by a range of factors including lower interest rates, super withdrawals, mortgage and rent deferrals, and all of the various government stimulus measures (including JobKeeper payments, and JobSeeker). </div>
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<div>No wonder them Harvey Norman shares have come roaring back! </div>
<p><strong>PETE WARGENT</strong><em><span> </span>is the co-founder of AllenWargent property buyers and a best-selling author and blogger </em></p>
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Consumer confidence hits three month high: Pete Wargent

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<div class="column">NAB have suggested the orderly correction in house prices will continue over the next 18 to 24 months, with Sydney units falling around 10 percent and Melbourne houses over eight percent.</div>
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<div class="column">NAB’s change in forecast comes after their current market sentiment survey dipped to a seven year low and confidence collapsed.</div>
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<div class="column">Confidence in the <a href="https://www.urban.com.au/news/86653-confidence-falls-in-sydney-housing-forecast-worst-in-2018" target="_blank">NAB Residential Property Index in July</a> saw confidence fall to its lowest level since mid-2016.</div>
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<div class="column">Its recent release is its first negative read since mid 2012, when the property price boom began.</div>
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<div class="column">"Weakening house prices in New South Wales and Victoria weight heavily on the market," NAB's chief economist Alan Oster said.</div>
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<div class="column">In July NAB forecasted a fall of 3.7 percent in the Sydney housing market this year. Now they suggest it will be a 5.7 percent decline.</div>
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<div class="column">Melbourne's housing market has seen the biggest forecast change. Predicted to drop 2.3 percent over the year in July, they are now forecast to decline by 5.9 percent, even greater than Sydney.</div>
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<div class="column">Unit prices in Sydney have now been tipped to decline twice as much as they were forecast to in July.</div>
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<div class="column">NAB predicted a 1.6 percent decline, which they have changed to a 3.6 percent drop.</div>
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<div class="column"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/10/10/NAB%20units.jpg" alt=""></div>
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<div class="column">Oster says the dwelling declines are a healthy correction.</div>
<div class="column">
<p>"Overall, we see this as a healthy correction which will help offset some of the risk in the household sector against a backdrop of a relatively healthy economy and labour market," he said.</p>
<p>"Our central scenario does not include a credit crunch event leading to disorderly falls in house prices."</p>
</div>
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