- Consumer confidence increased modestly last week (+0.7%) but remained 0.9% lower over the month in February (Figure 1). Consumer confidence has retraced much of the solid bounce around the months of the September federal election to be a touch higher than its long-run average. This is a similar profile to recent trends in business confidence.
- Moves were mixed but generally small across the different consumer confidence subindices in February (Figure 10). However, ‘good time to buy a household item’ fell relatively sharply (to 33.0 from 38.5).
- The subindex most correlated with household consumption – ‘better off financially compared to a year ago’ – was unchanged in February. However, this index has strengthened notably since August last year and is consistent with a modest pick up in household consumption growth going forward (Figure 3).
- The subindices most correlated with labour market indicators were somewhat mixed but overall suggest some near-term improvement in labour market conditions (Figures 4 & 5). This is consistent with the recent stabilisation in a number of job ads/vacancies measures and our view that the unemployment rate is likely to drift only modestly higher to around 6%.
ANZ Chief Economist Warren Hogan said:
“The outlook for the Australian economy is becoming more positive. Despite retracing since the federal election last year, consumer confidence remains firmly above levels seen in 2011 and 2012. This suggests household consumption growth should begin to improve. There are already signs that the low Australian dollar is encouraging domestic retail spending, with retail sales growth strengthening notably since last July. Low interest rates and higher asset prices are likely to be in play here also. ANZ forecasts household consumption to pick up only modestly this year, likely crimped by soft household income growth as mining activity slows from the middle of this year, but strengthen in 2015.
More broadly, concerns over the economy’s ability to transition from its reliance on mining investment to other sources of growth have cooled a little. Additional to the improved outlook for household consumption, building approvals (both residential and non-residential) have risen sharply and suggest a strong improvement in building construction this year. Nonetheless, there are some significant uncertainties to this outlook, in particular the extent of decline in the terms of trade over the next year or so. ANZ thinks the RBA will continue to leave monetary policy at accommodative levels for some time and forecasts the cash rate to remain at 2.5% this year and gradually increase in 2015.”
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