Consumer confidence posts bizarre bounce

Advertisement

By Leith van Onselen

The ANZ-Roy Morgan Research consumer confidence index jumped to an 18 month high in the week ended 28 June, surging 2.3 points to 116.3, to be tracking above its long-run average of around 113 points (see next chart).

ScreenHunter_8034 Jun. 30 10.29

The bounce was driven by an improved perception on the outlook for the Australian economy, with the outlook in the year ahead jumping by 5.7% whilst looking five years ahead increased by 4.6%.

Commenting on the result, ANZ chief economist, Warren Hogan, turned bullish, believing confidence is now in a clear uptrend:

Advertisement

“Consumer confidence reached an eighteen month high last week and is now clearly on an upward trend. Importantly, the sub components of the index relating to the economic outlook, which had previously been very weak, are rising strongly. In our view this is because of improving labour market conditions and reduced anxiety about job security and employment opportunities.

In recent years interest rates and asset prices have had very little impact on trends in consumer confidence. It has been concerns about the labour market, incomes, and political leadership which have been driving factors.

What is critical now for the Australian economy is this emerging consumer confidence to be sustained and translated into steady consumer demand and ultimately business confidence.”

I remain highly skeptical of this view. Iron ore prices will head lower over the second half, draining national income. The situation in both China and Greece remains worrying. And Australia still faces large falls in mining capex and the shuttering of the local car industry through 2016 and 2017.

Moreover, about the only areas of the economy that are firing right now are those related to the Sydney/Melbourne housing bubbles – hardly a sustainable situation.

Advertisement

Nevertheless, the below chart plots the most recent Westpac-Melbourne Institute Consumer Sentiment index against the latest ANZ-RM Consumer Confidence index:

ScreenHunter_8033 Jun. 30 10.28

Note the diverging trends.

Advertisement

[email protected]

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.