The ANZ-Roy Morgan consumer confidence index registered a second consecutive rise in the week ended 13 March 2016, rising 1.6 points 116.4 to be tracking further above the long-run average of 112.7 (see next chart).
The overall rise in confidence was driven by a combination of cheaper petrol prices, continued gains in Aussie shares, and the higher Australian Dollar.
Accordingly, perceptions towards household finances improved, with the sub-index tracking personal finances in the year ahead jumping by 5.4%, whereas the index measuring current finances compared to a year ago also improved 3.8%.
According to Felicity Emmett, head of Australian economics at ANZ:
Confidence has retraced the falls associated with financial market volatility in January and is now sitting at above-average levels. This week’s reading is the second highest seen since January 2014, reflecting a more upbeat view of consumers’ personal financial situation, as well as improving confidence about the economic outlook.
There is a mix of factors that may be playing a part in lifting confidence recently: the stronger Australian dollar is seen as a good thing for households wanting to travel overseas, equity markets have retraced most of their earlier losses, and petrol prices have been falling sharply since the beginning of the year.
Solid labour market conditions are also likely to have played a key role in lifting confidence. This week’s labour market report will be important in assessing whether the recent strength has persisted. Further inroads into the unemployment rate will be crucial for confidence and spending.
Given the housing bubble is supporting employment and economic activity, my view remains that confidence will turn down once housing turns down in the second half.
Nevertheless, the below chart plots the most recent Westpac-Melbourne Institute Consumer Sentiment index against the latest ANZ-RM Consumer Confidence index, with both diverging:
