The ANZ-Roy Morgan Research consumer confidence index retraced by 0.7 points in the week ended 15 November after hitting a 22 month high last week (see next chart).
The slight fall in confidence was driven by reduced confidence in the economy, with sentiment towards the economy in the year ahead falling by 3.7%, and five years ahead by 2.4%.
According to ANZ chief economist, Warren Hogan, sentiment is pointing towards a good Christmas for retailers:
While consumer confidence fell last week, levels remain elevated and well above their long run average. This is a good sign ahead of the critical Christmas retail season.
Households remain confident in the new government as shown in recent news polls. The improvement in views about future finances likely reflect last week’s employment data and the fall in the unemployment rate below 6%.
The below chart plotting the most recent Westpac-Melbourne Institute Consumer Sentiment index against the latest ANZ-RM Consumer Confidence index confirms this view:
Both are running at a positive level, which does point to a solid Christmas.
However, Warren Hogan is concerned that any weakness in the housing market could derail the consumer confidence rally next year:
While momentum in the economy appears solid at the moment, further softening in the housing market could be a challenge for confidence in the months ahead.
Today’s Consumer Red Book, released by Westpac, supports this view, revealing sharply falling sentiment towards housing, with the “time to buy a dwelling” measure down sharply on a year ago and 29% below its 2013 peak:
The House Price Expectations Index is also materially below its long run average:
We also know that auction clearance rates are falling:
And that they are a good leading indicator of house price growth (chart from a month ago):
So if house prices roll, especially in Sydney, then consumer confidence will too. Add in the triple employment shocks brewing from mid next year – i.e. declining mining investment, falling dwelling construction, and the closure of the car industry – along with the ongoing commodity and terms-of-trade shock, and the longer-term outlook for consumer confidence is poor.
