Australia’s consumer sentiment climbs strongly in August

Consumer confidence in Australia climbed considerably in the last two weeks and is at the highest level in nearly three years. The ANZ-Roy Morgan consumer confidence index rose strongly by 3.6 percent in the week ending 21 August to 121.8. This the highest level since November 2013 and a rise from the earlier figure of 117.6.

The rebound in the sentiment index was widespread. Consumers’ views of the outlook for the economy for 12 months climbed at a robust 5.4 percent. Meanwhile, views of the households of the five year economic outlook rebounded 4.8 percent. Both the 12 month economic outlook and five year economic outlook indices are currently more than their long-run averages for the first time since early 2013.

An upward trend was seen in the consumers’ sentiment towards their own finances. Household’s views regarding their current finances rose 1.3 percent, whereas their views on their future finances climbed 1.4 percent.

The views of households regarding whether ‘now is a good time to buy a major household item’ improved strongly by 5.1 percent. This sub-index is strongly correlated with auction clearance rates and might capture some of the improved housing market momentum, noted ANZ.

The four week moving average is 6.4 percentage points more than the long run average and sentiment has been on a higher trend since the beginning of 2016. According to ANZ Senior Economist Jo Masters, the increase in sentiment shows more positive views of consumers’ personal financial situations and improving sentiment regarding the economic outlook.

The labor market report that was released last week showed a rise in employment and a decline in the jobless rate to 5.7 percent. This is probably one of the factors for the increase in confidence. Increased levels of sentiment are also in line with strong auction clearance rates, especially in Melbourne and Sydney. Equity markets continue to be buoyant, while financial market volatility is low.

“While good news on the labour and housing markets appear to have boosted confidence recently, the key for the broader economic outlook is whether higher confidence can translate into spending, particularly given high household debt”, added Masters.