Confidence index falls.

The Westpac Melbourne Institute Index of Consumer Sentiment and the ANZ-Roy Morgan Australian Consumer Confidence Index both fell in February, on the back of a volatile global share market.

Extensive media coverage of these developments would have unnerved respondents on two fronts, the impact on their own financial position and concerns for general global stability, according to Westpac chief economist, Bill Evans.

“These concerns appear to have been acutely felt by retirees whose confidence fell by 13.5%. In these circumstances the 2.3% fall in the index is a decent result and is now registering a fourth consecutive month where optimists outnumber pessimists and follows 12 consecutive months where pessimists were in the ascendency for all but one month. However, the level of the index is still well below levels typically associated with a robust consumer.

On face value the ‘year ago’ component of the index is sending a very weak signal about likely spending prospects, Evans said. “Not surprisingly the ‘economic conditions, next 12 months’ component fell sharply by 4.7% while the ‘economic conditions, next five years’ component was stable.”  While the time to buy a major item sub-index delivered some good news for retailers with a modest 0.9% rise, this component is up only 0.6% over the year signalling ongoing reluctance from households to commit to large purchases.

Consumer views around housing showed mixed moves with buyer sentiment softening but price expectations improved with a notable lift in NSW buyer sentiment that rose 7%, with a cautionary note, with price expectations coming from a weaker starting point and still showing the biggest pull back on this time last year.

The ANZ-Roy Morgan Australian Consumer Confidence fell 2.6% this week, retracing gains over the previous two weeks. All sub-indices posted declines, with the ‘current economic conditions’ sub-index the main culprit.

Household sentiment towards current economic conditions dropped a sharp 6%, unwinding much of the 8.3% cumulative rise over the previous two weeks. Views towards future conditions slipped 0.7%, its second straight weekly fall. Consumers were also less optimistic about financial conditions this week and views towards current and future conditions fell 2.6% and 1.8% respectively. Sentiment around the ‘time to buy a household item’ fell for the fourth straight week, slipping 1.9%.

ANZ’s head of economics, David Plank, said given the tumble that global and domestic equities took last week it was unsurprising to see confidence falter. In particular, views around current economic conditions fell sharply, although they remain well above their long term average.

“While overall sentiment has risen considerably since Q3 2017, much of it has been driven by an improvement in economic conditions. In contrast, views towards financial conditions rose less sharply over the same period and have recently begun deteriorating,” Plank said. This reflected the lack of any pass through to wages despite strong employment growth and together with moderating house prices and high levels of debt were keeping household finances under pressure.

“On this front, Reserve Bank governor Philip Lowe’s speech last week, which in our view effectively removed the prospect of a rate hike this year, should provide some comfort. The upcoming employment and wage numbers will likely set the tone for confidence over the coming weeks. Further financial market volatility may also have an impact,” he said.