Westpac’s March Red Book is out and shows across the board uplift in consumer sentiment, from Bill Evans :
In last month’s Red Book we welcomed the strong rise in consumer sentiment in Feb but warned that it fell short of being clear confirmation of a consumer upswing. We noted that not only did the rise need to be sustained and accompanied by a clear improvement in unemployment expectations, it needed to point to an upturn strong enough to absorb a sizeable ‘shock’ from the mining sector later in the year.
The Mar Westpac–Melbourne Institute Consumer Survey comes a step closer to meeting these criteria. It shows the sentiment rally being well sustained with the 110.5 reading on the Index now in solidly optimistic territory. It also shows consumers’ job loss concerns easing, after holding at deeply fearful levels in Feb.
It again falls short of a consumer ‘breakout’ though. The turn in unemployment expectations remains tentative and modest, falling well short of the 130 target we see as the significant threshold. Meanwhile, the picture on current spending momentum is much weaker. The Q4 national accounts revealed a more abrupt slowdown in consumer spending over 2012, more in line with the guidance we were getting from the consumer survey in the middle of last year but weaker than we had been assuming.
Other aspects of the Mar survey also suggest the consumer caution that has restrained demand over the last five years is still stubbornly entrenched. Our measure of consumer risk aversion is largely unchanged despite the more upbeat consumer mood.
There are some frailties around ‘non interest rate related’ supports to sentiment as well. The improved tone from off shore is susceptible to setbacks, particularly in Europe. ‘Ditto’ the rally in sharemarkets. Consumers may also have misjudged the extent to which conditions have improved in the mining sector – the ‘hard landing’ fears of Aug-Sep 2012 have clearly abated but the sector still faces challenging conditions and a turning point in investment this year. They may also be over-optimistic about prospects for housing and non-mining sectors.
The sentiment rally will be encouraging for the RBA and will keep it sidelined on rates near term. But we still see the balance of risks as likely to tilt back towards a further rate cut around the middle of the year.
This notion that we should be handing the mining boom off to a reborn consumer is troubling to say the least. Good on the consumer for holding onto caution. Financial repression is clearly working at the margin to push folks out on the risk curve. However, I retain the view that we have made a structural shift to higher household savings rates no matter what strategies our reckless elite employ to end it.
