During most of the period between 2014 and 2017 there was a divergence between consumer sentiment and business confidence in Australia. Some economists explained the difference by a lack of wages growth; low wages growth is good for business in keeping costs down and margins up. However, households’ propensity to spend is hampered. Other explanations, such as households’ debt levels and the threat of higher mortgage rates have also been put forward.
After the December consumer survey was released, there was some talk of a turnaround and a possible alignment of the business and household sectors. The latest January survey has provided some support to this line of thinking. According to the latest Westpac-Melbourne Institute Consumer Sentiment Index, households were more optimistic than a month ago as the Index reading jumped from 103.3 in December to 105.1 in January. Any reading below 100 indicates the number of consumers who are pessimistic is greater than the number of consumers who are optimistic. The long-term average reading is just over 101.
The survey was held in the second week of January. Westpac chief economist Bill Evans appears to be reluctant to jump on the “better times” narrative at this stage. “The consumer mood has posted a clear improvement since the September quarter…However, the degree to which spending improves still looks likely to be constrained with the survey detail suggesting family finances are still under pressure, [with] limited scope for further reductions in saving to support spending and high debt levels an ongoing concern for many households.” He does not expect any RBA rate rises in 2018.
Bond market yields and the local currency rose on the day. 3 year bond yields gained 2bps to 2.22%, 10 year bond yields gained 1bp to 2.79% and the local currency rose by around 0.3 U.S. cents to around 79.9 U.S. cents.