Consumer sentiment soars to three year high, employment fears recede - Westpac Melbourne Institute; And Australian dollar hits three month high. But WA business confidence plunges.
Consumer confidence has soared to a three-year high, propelled by record low interest rates and the election of a coalition government.
The Westpac Melbourne Institute Index of Consumer Sentiment increased by 4.7 per cent in September to 110.6, its highest point since December 2010.
Westpac chief economist Bill Evans said although the survey was mostly conducted before Saturday's federal election, it was clear that between September 2 and 8 the election outcome played a big part in the confidence boost.
Record-low interest rates also contributed, he said.
"This is a very strong result," Mr Evans said.
"It was really only the last day of the survey that covered the actual election result, although media coverage pointed strongly to a coalition victory throughout the survey period.
"Responses collected on the last day of the survey showed a further marked lift in sentiment although the sample size is too small for this to be a statistically valid result.
"I think it is reasonable to conclude that the election result played an important if not leading role in this strong boost to consumer sentiment.
"The result is comparable with the boost to the index in March 1996 when the coalition was returned after 13 years in opposition."
Mr Evans said components of the index showed the confidence boost was driven by optimism about the economy, rather than how households feel about their own finances.
He said aspects of the survey would give the Reserve Bank encouragement that rate cuts, complemented by the boost from the election, "make policy settings about right".
But soft labour market, business investment and consumer spending conditions meant the RBA would need more time to assess the underlying strength of the economy, he said.
Western Australian business confidence plunges
Meanwhile, a separate survey has shown business confidence in the West Australian economy has fallen to levels not seen since the global financial crisis.
The Westpac/Chamber of Commerce and Industry survey shows 60 per cent of businesses in the state expect the local economy will perform poorly over the next 12 months, compared to 29 per cent this time last year.
Just 8 per cent of respondents expect conditions will improve, which is the lowest result since March 2009.
Almost half of respondents – 48 per cent – said their bottom line had deteriorated, in line with falling sales and rising business costs in the state.
About 30 per cent had cut staff during the September quarter to date, with only 13 per cent hiring more workers.
"This result has been foreshadowed for some time, with expectations falling since late last year when the resources sector began to slow," Westpac/CCI said.
"It appears that low levels of confidence have started to flow through to reduced activity across the economy."
Last week, a CCI/Curtin Business School survey showed consumer confidence had also plunged in WA, with just 10 per cent of respondents expecting the economy to strengthen in the next three months compared to 33 per cent who anticipated it to weaken.
The Australian dollar is higher due to strong economic data out of China and easing concerns about a possible US military strike on Syria.
At 1200 AEST on Wednesday, the local unit was trading at 92.93 US cents, up from 92.50 cents on Tuesday.
Earlier on Wednesday, the local currency reached a three month high of 93.18 US cents, after stronger than expected Chinese industrial production and retail sales figures boosted confidence in the world’s second largest economy.
Easy Forex currency dealer Tony Darvall said the fall of the Australian dollar mid-morning was surprising, as the Westpac Melbourne Institute Index of Consumer Sentiment showed consumer confidence was at a three year high.
I'm a small business operator and the people I work with truly believe the boom times are back and we'll return to the Howard wonder years. Often perception becomes reality and we could see a strong positive feedback loop. Same with housing as the market is picking up the perception of which causes it to pick up even more strongly due to fear of missing out, note record high auction clearance rates close to 90% in Sydney, that's almost unheard off to get that high even in previous booms. This has a way to run yet.
The unemployment expectations index fell 6.6% in Aug, the largest monthly improvement (remembering that a fall in the index suggests consumers are not expecting unemployment to rise as much as they did a month earlier) since the 6.9%fall in Nov 2012.
Through the year to Aug, the index is now down 8.2% compared to a –0.7%yr print in Jul and 3.2%yr print in Jun. Following two declines and one flat print, over the last three months the trend index fell 0.3% in Aug but is 20% higher than its long run average.
by: By Colin Brinsden, AAP Economics Correspondent September 11, 2013 7:04AM
The performance of the housing sector will play a key role in any recovery in consumer spending. Source: AAP
THE performance of the Australian housing sector will play a key role in any recovery in consumer spending and retail sales growth, an independent economic forecaster says.
Deloitte Access Economics believes the election of a majority government should allow for more certainty around political policy and improve general confidence.
This should see retail spending pick up in the September quarter, with a more sustainable improvement kicking into 2014/15.
Deloitte Access' quarterly retail report on Wednesday showed there was a promising start to 2013 before sales turned "tragic" by mid year, with overall weak growth.
This was likely due to a drift higher in the jobless rate and the marking down of economic growth prospects by both Treasury and the Reserve Bank of Australia.
Now a retail sales recovery may be on the way as house prices start to lift.
I'm still trying to remember what life was like before the GFC. If you include the ramp up as part of the GFC, and even the doc com boom, when did things start to get crazy? and when are we going back to? Will it be like '97 all over again?
Still got some unwinding to do - but things could be on the improve. Only question is - what will be the new normal?
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
Improved consumer sentiment is expected to lift the Australian property market following the federal election, experts say.
The biggest impact of the election results on the property market, however, will be short term, with activity likely to increase in a more politically stable environment, said BIS Shrapnel senior property analyst Angie Zigomanis.
“People may have been holding off any decision pending an election result, so it could encourage more people to go through with that purchase decision,” Mr Zigomanis told Smart Property Investment. “I don’t think everybody will be going out to the auctions this Saturday, but it may be something that evolves over the next few months.”
The long-term market impact of a new government is yet to be determined. With no housing policy released, experts remain uncertain of what the market will face.
SQM Research managing director Louis Christopher said this was surprising given that many people agree there is still an affordability problem in Australia.
“We’ve got to ask ourselves what kind of policies the federal Coalition would bring in, and that’s a really difficult one because they decided not to release any type of vision or view on the housing question at all,” he said.
“They’ve come out with absolutely nothing, which is a bit of a concern – it suggests that they don’t have any vision on housing and how to address the issues of affordability.
“There are a lot of questions there on that front, but if we do get a response from the government, it might have a meaningful impact on the housing market over the long term,” Mr Christopher said.
A new government combined with low interest rates, rising asset prices and the Aussie dollar appreciating again has skyrocketed consumer sentiment.
The Westpac-Melbourne Institute of Consumer Sentiment increased by 4.7 per cent in September, which took the index to 110.6, its highest reading for almost three years.
A level above 100 means the number of optimists outweighs the number of pessimists. Sentiment is now 12.7 per cent higher than it was a year ago.
The key driver, according to the survey, was the election outcome.
“Consumers like certainty and the election outcome eliminates the uncertainty around who will govern the country,” a Commonwealth Bank statement says.
The cash rate is also at a record low, which means low mortgage repayments and the ability to repay debt quicker or obtain cheaper new debt which, in turn, is encouraging more investors back to the market.
“Asset prices and in particular house prices have been trending higher over recent months. This is welcomed by homeowners. Rising house prices improve confidence by strengthening household balance sheets through a lift in net worth.”
Sentiment was up the most in Victoria (13.1 per cent) but in a sign of good things to come for Queensland and South Australia, both states recorded improved sentiment. It was up by 7.4 per cent in the sunshine state and 6.3 per cent in SA.
On the other hand, consumer sentiment was lower over the month in New South Wales (down 2.9 per cent) and Western Australia (down 0.8 per cent).
I'm still trying to remember what life was like before the GFC. If you include the ramp up as part of the GFC, and even the doc com boom, when did things start to get crazy? and when are we going back to? Will it be like '97 all over again?
Still got some unwinding to do - but things could be on the improve. Only question is - what will be the new normal?
im thinking the new normal could be called "Keynes Plus"
Keynes only mistake was that he grossly underestimated everything. We need to spend vastly more than we have been and print slightly more than that. Who cares if house prices are 5M if everyone is getting paid 20k per week
seriously though, with all the progress (infrastructure etc) that's been made under the spendthrift system it's hard for policy makers to ignore the benefits.
Retailers are predicting their strongest Christmas trading period in years after consumer confidence soared to three-year highs.
Driven by record low interest rates and the weekend's election result, the Westpac Melbourne Institute Index of Consumer Sentiment, released on Wednesday, increased by 4.7 per cent in September to 110.6 – its highest point since December 2010.
Harvey Norman chairman Gerry Harvey said he was not surprised by the increase in consumer confidence based on recent in-store sales.
"We're starting to see the first signs of growth in our business for some three years or more," he said. "Until now it's been a continual downward spiral for us but I think the low interest rates plus the political stability that comes with the expectation that the election had been won before it even began has had an impact on our sales."
"I'm speaking to the people running the stores every day and their expecting Christmas to be better this year than last year... and the last two or three years," he says. Westpac chief economist Bill Evans said although the survey was mostly conducted before Saturday's election, it was clear the election outcome played "an important if not leading role in this strong boost to consumer sentiment." Record-low interest rates also contributed, he said.
The Australian National Retailers Association's CEO Margy Osmond said she was hopeful a new government would continue to impact consumer confidence and retail sales in the lead up to Christmas.
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