Consumer confidence recovers after new year low

According to the ANZ-Roy Morgan Consumer Confidence report for the week ending 12 January, consumer confidence increased by 1 per cent when compared to the previous week.

The latest rise in confidence was driven by strength in the economic sub-indices, according to the report.

The “current economic conditions” sub-index increased by 6.1 per cent over the week, following on from a fall of 12.9 per cent in the previous week, while “future economic conditions” rose by 8.6 per cent.

However, confidence surrounding “current personal finances” dropped by 5.5 per cent over the week, dropping to its lowest level since June 2019. 

The “future personal finances” index increased by 0.6 per cent and has slowly risen for three consecutive reporting periods.

According to the report, the four-week moving average of “inflation expectations” was down by 0.1 percentage points to 3.9 per cent.

Commenting on the results of the report, ANZ head of Australian economics David Plank said tracking consumer sentiment towards the national economy was vital during the ongoing bushfire crisis.

“The weekend’s consumer confidence survey is of considerable interest given the plunge in sentiment in economic conditions recorded over the first weekend of January,” Mr Plank said.

“With milder weather seeing the intensity of fires diminish, though not by enough to prevent further tragic loss of life, and some better economic news in the form of building approvals, job vacancies and retail sales, it is not surprising much of the weakness in economic conditions reversed.

“This was enough to push overall sentiment 1 per cent higher. This offers some hope for some recovery in consumer spending after what appears to be a very subdued Christmas retail season.”

Economic confidence and sentiment levels dropped in early January

The results are contrasted by those of the previous week, which saw a disappointing start to the year for consumer confidence.

The most recent week-on-week rise in overall confidence recovered only roughly half of the loss experienced in the previous week, which dipped by 1.7 per cent.

Indeed, during the week ending 5 January, consumer confidence fell to its lowest level in more than four years. 

According to ANZ, a drop in confidence at the beginning of the year was unusual but was almost certainly a direct result of the catastrophic bushfires that have continued to ravage regional areas of Australia.

In the previous report, the “current economics conditions” index fell by 12.9 per cent, while “future economic conditions” fell by 8.9 per cent.

According to ANZ-Roy Morgan, the “current economic conditions” index for the week ending 5 January showed the lowest level of confidence since the global financial crisis, while sentiment towards future economic outlook was at its lowest level since 1994.

“Against the backdrop of the weekend’s catastrophic bushfires, it is not surprising consumer confidence declined,” Mr Plank said at the time.

“But the reported decline of 1.7 per cent since the last survey in mid-December understates the weakness when one considers the New Year usually sees a strong gain in sentiment.

“Between 2010 and 2019, the average gain in confidence for the first week of January has been 3.4 per cent. Against the usual seasonal gain of recent years, confidence has started 2020 in very poor shape and at its lowest level in more than four years.

“The fact this is due to sharp falls in both the current and future economic outlooks indicates to us the bushfires are almost certainly the key cause,” he concluded.

[Related: Bushfires to hit GDP by at least 0.4% in Q1: AMP]