Consumer confidence hits eight month low

by Julia Corderoy09 Apr 2015
Consumer confidence hit an eight month low in the week leading up to the Reserve Bank’s cash rate announcement, illustrating that the central bank may be more worried about rising house prices than the sluggish economy.

Consumer confidence dipped 2.3% last week, according to the ANZ-Roy Morgan Consumer Confidence rating, and has been slowly trending lower since late last year.

The weakness last week was broadly based with four out of the five sub-indices declining. The largest fall was in ‘time to buy a major household item’ which dropped 4.6% to the lowest level since June 2014, around the time of the Commonwealth Budget.

There was also weakness across the forward looking sub-indices. Confidence in household finances next year (-2.8%), the economic outlook over the next year (-2.9%) and five years (-1.3%) were all down. 

One of the key drivers in consumer confidence has been weak job security, according to ANZ’s chief economist, Warren Hogan. ANZ’s job advertisement series released earlier this week revealed that job advertisements fell 1.4% in March for the first time after nine months of rises.

Hogan says the next year will be a bumpy ride for confidence, as we assess whether the soft labour market will offset the gains from strong house price growth.  

“A key question for the outlook therefore is the extent to which a soft labour market will offset the ‘feel good’ factor from higher asset prices. In our view, these conflicting forces suggest the road for confidence and retail over the next year may be bumpy.”

In the Reserve Bank’s statement of monetary policy, accompanying the decision to keep the cash rate on hold at 2.25%, governor Glenn Stevens said economic growth is stagnating.  

“In Australia the available information suggests that growth is continuing at a below-trend pace, with overall domestic demand growth quite weak as business capital expenditure falls.”

Whilst he down-played concerns over heat in the housing market, saying credit growth is moderating and rising house prices are contained to Sydney, the decision to leave the cash rate on hold signifies the Reserve Bank may indeed be more cautious about rising house prices than a “below-trend” economy. 

However, according to CommSec’s chief economist, Craig James, the Reserve Bank is likely to cut interest rates by a further 25bps to 2% in its next meeting on May 5.
 

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