Unseasonably flat consumer confidence could weigh on RBA

by Julia Corderoy14 Jan 2015
Unseasonably flat consumer confidence is casting doubts on the strength of the Australian economy ahead of the first Reserve Bank monetary policy meeting for the year.

The ANZ consumer confidence index rose a mere 0.3% to 112 in the week ending January 11. The ANZ figure follows another modest rise of 1.4% last week, but leaves confidence tracking just below the long-run average of 112.8.

ANZ’s chief economist Warren Hogan said the waning confidence levels are unusual for this time of year when there is usually a Christmas seasonal uplift. 

"The lack of momentum in consumer confidence remains disappointing, especially given lower petrol prices and the usual seasonal uplift in January," he said.

"Subdued levels of confidence, combined with soft retail sales in November and mixed anecdotes about December sales, suggest that households may be saving rather than spending the real income boost from lower petrol prices."

Sluggish consumer confidence could be attributed to the weak labour market. Australia's unemployment rate is expected to hold steady at its 12-year high of 6.3% when official labour figures for December are released later this week.

According to a JP Morgan analyst, 10,000 jobs are expected to be added in December, but that still isn't enough to keep up with demand.

"With strong migration, the working age population is growing by 1.8% per year and employment is only growing at about 1% so, even with what looks like an ok pace of jobs growth, it's not enough to tread water," Fairfax quotes Ben Jarman, senior economist at JP Morgan.

This same sentiment was echoed in ANZ’s latest job advertisements series, where despite job ads rising 1.8% in December, it is not considered enough to counteract the flow of new workers into the economy.

Jarman also said that if unemployment rises above 6.5%, then the Reserve Bank may have no choice but to cut the cash rate. 

"The RBA have been pretty clear that the unemployment rate is very important for them," Fairfax quotes Jarman.