by Craig James

Consumer sentiment:
The Westpac/Melbourne Institute index of consumer confidence fell by 5.3 points (4.8 per cent) from a near 3-year high of 110.3 points in November to a 5-month low of 105.0 points in December. Confidence fell in NSW, Victoria, South Australia and Queensland but rose in Western Australia.

Banks in favour: In the December quarter, 32.6 per cent of consumers believe that the wisest place for new savings is in the bank, followed by real estate (26.6 per cent of respondents) and the sharemarket (11.6 per cent). The reading for ‘paying down debt’ was the lowest in six years (11.3 per cent).

Companies largely affected by the results are in the Retailing sector including: David Jones, JB Hi-Fi, Harvey Norman, Super Retail Group, Premier Investments and Pacific Brands.

What does it all mean?

No one could accuse Aussie consumers of irrational exuberance. Inflation, interest rates and the jobless rate all remain low, the economic expansion has entered its 23rd year and the global economy is improving, but consumers have apparently become more downbeat. And we can’t blame the survey methodology – the weekly Roy Morgan poll has indicated similar trends, down 5.5 points to 114.6 in the latest survey.

There are a few things on consumer minds at present. Job losses at Qantas, the uncertain future of Holden, a weaker Aussie dollar, sharply higher petrol prices and a soggy sharemarket have all conspired to make Aussie consumers feel less chipper. Still, it has to be noted that consumer sentiment was near 3-year highs last month, so sentiment is fluky at present.

Certainly Aussie consumers remain conservative. Almost a third of poll respondents believe the best place for new savings is in the bank, ahead of the housing and share markets. And only three percent of respondents would choose to spend any extra savings rather than put the money to work elsewhere.

What do the figures show?

Consumer sentiment:

The Westpac/Melbourne Institute index of consumer confidence fell by 5.3 points (4.8 per cent) from a near 3-year high of 110.3 points in November to 105.0 points in December. The index is still up 5.0 per cent over the year.

The current conditions index fell by 4.6 per cent, while the expectations index fell by 5.0 per cent.

Four of the components of the index fell in December:

  • The estimate of family finances compared with a year ago was down by 7.8 per cent;
  • The estimate of family finances over the next year was up by 3.9 per cent;
  • Economic conditions over the next 12 months was down by 9.8 per cent;
  • Economic conditions over the next 5 years was down by 8.7 per cent;
  • The measure on whether it was a good time to buy a major household item was down by 2.3 per cent.
  • Gender & demographics: Men (index reading of 108.9, down 8.2 per cent) are significantly less optimistic. Women (100.9, down 1.0 per cent) are also less optimistic but recorded a far weaker deterioration in December. Young people (18-24 years) are more optimistic (index up 2.9 per cent to 110.4.0). Across the other demographics: 25-44 years (index 109.6, down 3.4 per cent); 45 years plus (index 101.1, down 7.1 per cent).
  • By home ownership status: Confidence amongst tenants fell by only 0.8 per cent; confidence by those who own their homes was down 7.1 per cent; while confidence levels by those paying off home loans fell by 3.4 per cent.
  • Homes & Cars: The “time to buy a dwelling” index fell by 10.5 per cent in the December quarter to 129.8. The “time to buy a car” index rose by 5.6 per cent in the quarter to 140.8.
  • Wisest place for savings: Banks remain the wisest place to put new savings according to the survey. Overall 32.6 per cent believe the wisest place for savings was in the bank, the result up 3.3 percentage points over the quarter. Next highest was real estate (26.6 per cent, down 0.9pp), followed by shares (11.6 per cent, up 2.8pp), and pay debt (11.3 per cent, down 2.5pp to a 6-year low).

Why is the data important?

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.

What are the implications?

By all accounts Aussie consumers aren’t likely to go on a spending spree this Christmas. Confidence has softened, although it still remains historically high and better than last year. But few are preparing to spend any windfall gains – more likely they will put it in the bank. Retailers will need to keep discounting to cause people to part with their cash.

There is a reality check for real estate agents with a sharp drop in people saying that now is a good time to buy a home. No doubt reports of housing “bubbles” have had an impact. But there is a fillip for car dealers with many believing that this is close to the best time in a decade to be upgrading their ride.