Australia | Dec 15 2010
By Greg Peel
The economists at Westpac and the Melbourne Institute had been bracing for another fall in consumer confidence in December following the RBA rate hike-related dip in November. For starters, only Commonwealth Bank had increased its mortgage rate by near double the RBA rise and the other three majors had yet to make their moves when the last survey was conducted. Moreover, recent retail sales data had been quite weak and the third quarter GDP result disappointing.
Yet the Westpac-MI index rose 0.2% in December, remaining in “solidly optimistic” territory well above the long-run average. Why so?
It is possible that consumers were heartened by the December RBA statement, in which rates were implied to be on hold for some months. The latest drop in unemployment, by a greater margin than expected, should also have been a positive. But a wider story emerges once one digs down into the constituent parts of the survey.
An assessment of “family finances” rebounded 4.1% following the 10.2% drop in November, Westpac notes. “Good time to buy a household item” rose 0.8% and “car” 0.4%. This should be good news for retailers, but as was the case last month it appears Australians are happier to buy a big ticket item than to spend recklessly on small ticket items. The strong Aussie is likely at work on the big tickets but “pay down debt” still won the “wisest place for savings” category with better than 20%.
Real estate is also now back in favour following what might be considered the November rate rise blip, and what Westpac suggests is a perception that house prices have at least flattened for now. Those who chose wisest place for savings as “buy real estate” were up to 18.5% from 16.7% at the expense of “buy shares” which fell to 9.8% from 11.5%. “Time to buy a dwelling” jumped a sharp 15.8%.
Also interesting are short and long-term expectations for the Australian economy. The opinion on the outlook one year ahead was up 1% to be only down 2.7% in 2010, but the five year outlook was down a sharp 7.2% to be down 21% in 2010. That's the biggest annual fall since the 1990s, Westpac notes, and the lowest level since February 2009 (in which the stock market was hitting its lows).
Perhaps Australians see the mining boom as a short term benefit, with broader problems of troubles in Europe and the US as potentially sending the global economy into panic once more down the track. Either way, the numbers suggest consumers are now more frugal than they were pre-GFC – a factor many retailers are yet to really come to terms with – albeit necessities such as house and car are still coveted.
The mining boom, suggests Westpac, may also be perceived only as a sign of higher interest rates ahead, given little benefit flows directly through to the average household.
So while the survey results can only be considered positive, it is no longer safe to assume blanket growth in consumer spending. It's a new world.
