The Westpac Consumer Confidence Index for December is out and it appears the RBA has hit a brick wall with a big 8.3% fall in December from 103.4 in November to 94.7 in December. No doubt the media will paint this as a big surprise but it isn’t. That’s not because I predicted it, rather if your surprised by volatility in anything right now you’re simply not paying attention. Besides, the Roy Morgan index has been predicting this for weeks. According to Bill Evans:
On face value it should be a surprise that the Index has not risen following a second rate cut from the Reserve Bank (which was eventually passed on in full by the major banks to mortgage borrowers). However the history of previous easing cycles shows that rate cuts do not guarantee an improvement in sentiment.
Since 1994 we have seen 20 rate cuts including last week’s. On 12 occasions the Index has increased following the rate cut
and on 8 occasions it has fallen. The likely explanation is that respondents’ concerns over the reasons behind the rate cut may overwhelm the perceived benefits of the cut itself.For this survey we also ask respondents questions about those news items which they most recall and whether these items are perceived positively or negatively. When interest rates are moving they typically capture considerable attention. For this survey news on interest rates was recalled by 31.5% of respondents whereas economic conditions attracted the attention of 60%; international conditions 55.6% and Budget and taxation 36.9%.
The news on economic conditions; international conditions and Budget and taxation was considered the most negative since 2008/09. News on interest rates was the most positive since that period.
Despite the positive perception of interest rates the confidence of respondents with a mortgage fell by 9.5%. Specific news which is likely to have unnerved respondents is the reported increase in the unemployment rate from 5.2% to 5.3% with a loss of 40,000 full time jobs. Of course, the constant stream of news on developments in Europe is also likely to have
impacted respondents, while equity markets were volatile.Four of the five components of the Index fell in December. The sub-index tracking views on “economic conditions over the next 12 months” was down by 19.4%; while “economic conditions over the next 5 years” fell by 14.4%; “family finances compared to a year ago” fell by 8.6% although “expectations for family finances over the next 12 months” improved by 3%. The sub-index tracking views on “whether now is a good time to buy a major household
item” fell by 3%.”Risk aversion increased markedly in this survey. When asked about “the wisest place for savings” 26.6% of respondents nominated “pay down debt”. That was an increase from 18.7% in September. Since we started measuring that component in 1997 there has only been one higher measure, in March 2010. Only 6.6% of respondents nominated equities – the lowest percentage since 1993; while the 14% nominating real estate was, apart from 2008, the lowest since the survey began in 1974.
Attitudes towards purchasing housing and motor vehicles also fell modestly. The index tracking views on “time to buy a house” was down by 1.9% while the index tracking views on “time to buy a Car” was down by 1%.
Gosh. That’s pretty bearish. Despite the Ross Gittins campaign for national ignorance, it seems Australians have got the message. This is no time to be leveraged. Good for them. The economy is better for it. Full report below.
