Find below Westpac’s bible of consumer attitudes, the Red Book, for February, 2014. This month’s report discusses the “tug-of-war” taking place between the strengthening housing market and the weaking labour market and fiscal consolidation. It’s a fascinating survey that’s well worth reading in full.
The new year has begun with an intensifying tug of war. On the positive side: a strengthening upturn in housing markets and a welcome, if modest, lift in consumer spending. On the negative: continued difficulties for many businesses and a looming tightening in government policy.
For Australian consumers, these forces are playing out most critically in labour markets. The issue of job security has been a pervasive, recurring negative for consumers over the last two years and already looks set to be a defining issue in 2014.
This month’s Westpac–Melbourne Institute Consumer Sentiment survey shows a further decline in ‘headline’ sentiment to a neutral overall level. However the detail shows a more substantive loss of confidence in the economic outlook and deteriorating expectations for unemployment.
Some of this likely reflects a shift in views on interest rates. The Feb survey shows most consumers now expect rates to be higher in 12mths time. That compares to a ‘no change’ view in Aug. The RBA’s move to a ‘neutral outlook’ at its Feb meeting has clearly prompted a reassessment.
The loss of confidence in the economic outlook and job security seems to stem from more deep-seated concerns as well. Toyota’s decision to end vehicle production in Australia by 2017 came after the Feb survey closed but the widely publicised problems facing the vehicle industry and other businesses such as Qantas seem to have been a factor in early 2014. We suspect they are raising fundamental concerns about the future of Australian industry.
An apparent ‘tough-line’ approach from the Federal government may be adding to these concerns in terms of both the assistance for ‘troubled’ sectors and warnings of a significant Budget tightening in May.
Next month’s survey includes additional questions on news heard that should shed more light on the loss of confidence in the economic outlook – showing for example the relative importance of news on the economy, budget, interest rates, and business profits.
It will also provide an update on where consumers see the ‘wisest place for savings’. This is a key gauge of risk aversion that could set the tone for 2014. Will it be another year of the ‘cautious consumer’? We suspect so.
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.
