Consumer Confidence is OK, But Long Term Worries Remain

After two months of rising consumer confidence, Aussie households are feeling a little glummer about things this month.

Sentiment fell 0.8% from last month, down from 101.7 points in November to 100.8 points in December. That comes according to the latest Westpac-Melbourne Institute monthly consumer sentiment index.

Keep in mind that any reading above 100 indicates more optimism than pessimism in the market.

So the figures show consumer confidence remains positive on the whole. But it did slip nonetheless, bucking two months of rising confidence. What caused the slide? Well, households have a lot of reasons to feel apprehensive.

Talks of GST tax hikes, a slowing property market, weak wage growth…you name it. It’s enough to turn us all into window shoppers.

In saying that, the actual figures aren’t all that bad. Compared to last month, and even December 2014, things look slightly more optimistic. Westpac chief economist Bill Evans notes:

The Index has held on to most of the gains from last month’s surprise 4% lift and is 10.7% above its levels this time last year. [There have] been only two months since January 2014 with higher index readings.

Last month we saw a surge in sub-indexes measuring the economic outlook whereas respondents assessments of their finances deteriorated. We attributed the economic boost to confidence in the Government’s new leadership team, and the concerns around finances to the banks’ mortgage interest rate increases in October.

In this month’s survey assessments around finances have almost fully recovered their October levels but expectations for the economic outlook have been pared back, albeit with these components still well above their October levels.’

Let’s quickly run through some of the results:

Family finances over the next 12 months: Household sentiment is up 5.8% since September, with a reading of 103.3.

Family finances versus a year ago: Here too households are feeling a lot perkier. The index rose 5.5% to 94.3 in December. That’s still below 100 though. So while households feel better about their finances compared to last year, the mood across the market remains downbeat.

Good or bad time to buy major household items: The W-MI index was up 0.8%, with a very positive reading of 122.4. Households still feel good about buying big ticket items like cars.

Yet there were also a few snags in the data, all relating to long term outlooks.

Economic conditions next 12 months: Sentiment was down 4.2%, with a reading of 93.0.

Economic conditions next 5 years: Here too sentiment was down, falling 11.3% between November and December. Crucially, the measure dipped below 100, falling as low as 91.2. The takeaway here is simple enough: households feel less secure about the long term outlook for the economy.

All in all, it wasn’t a terrible outcome this month. But there’s enough doubt about the future direction of the economy to cast doubt on sentiment going forward.

Mat Spasic,

Junior Analyst, Markets and Money

Slowing consumer confidence is a sign that economic hardship could be on our doorstep.

Markets and Money’s Greg Canavan has warned all year that Australia’s sleepwalking into recession. His free report, ‘Australian Recession: Unavoidable’, is timely in the wake of declining investments.

Business investment is down, as are government revenues. At the same time, household debt has risen to record levels. It’s a grim outlook, and one that’s likely to end in recession sooner rather than later.

But there is a silver lining in all this. You can take actions right now to protect yourself from the fallout of the coming recession.

Download your free copy today to learn how to protect your wealth from the coming crash. To find out how to download his free report right now, click here.

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

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