Confidence in Consumer Confidence?
When it comes to consumer confidence, it’s easy to develop statistical scepticism when it comes to the latest release of data measuring both our readiness and reluctance to both save and spend. Consumer confidence indicators provide a glimpse into our future and are based on survey results regarding people’s expected financial situations, their sentiments about the general state of the economy, unemployment and capability of savings.
When measuring consumer confidence, an indicator above 100 tells us we’re optimistic towards the future (and in which we’re more likely to spend money on major purchases such as real estate). Anything below 100 shows a pessimistic attitude towards future developments (likely resulting in more savings and less spending).
Navigating consumer confidence is a tricky business. If you go by the Melbourne Institute of Applied Economic and Social Research, which is the leading provider of statistics on consumer sentiment and inflation expectations, they’ve shifted their attention to weekly research results to gauge the impact of COVID-19 in Australia. The good news is that the majority of Australians are satisfied with the Federal Government’s handling of the coronavirus (COVID-19) pandemic. Drill down a little further and it shows that 60% of Australians report they’re moderately to very satisfied with government economic policies to support jobs and keep people at work, and more than 80% expect the impact of the pandemic to last for longer than six months. Around 30% of Australians reported feeling financially stressed, while around 40% reported feeling financially comfortable.
Another popular provider for statistics on consumer confidence is Roy Morgan Research which this week announced that confidence has strengthened for a third consecutive week, up 7.7% to 84.2. The results show 20% of Australians say their families are ‘better off’ financially than this time last year while 41% say their families are ‘worse off’ financially. 36% expect their family to be ‘better off’ financially this time next year compared to 24% that expect to be ‘worse off’ financially. And when it comes to making a major purchase, 28% say now is a ‘good time to buy’ while 47% say now is a ‘bad time to buy.’
A small boost in consumer confidence can be attributed to a variety of recent factors including the flattening of the COVID-19 curve in relation to rates of infection, early time-line indications of isolation measures easing, the recent recovery in equity markets, and better-than-expected unemployment figures. What this tells us is that timing the reactivation of the economy will be critical over the next few months.
When it comes to consumer confidence in the property market, if you consult the Westpac Bank Consumer Sentiment Index for Australia, it shows confidence around the economy, spending and jobs is now spilling over into real estate. The survey recorded the single biggest monthly fall in its 47-year history. The ‘time to buy a dwelling’ index dropped 26.6% (the biggest monthly decline on record), but at 82, the index is still above the GFC low of 67.1. Also concerning is the ‘price expectations’ index, which dropped by 50.8% to 69.7, a fall nearly four times bigger than the largest monthly decline since 2009.
While it’s clear the sudden downturn the economy has experienced due to the shutdown of entire industries and significant job losses is starting to show signs of affect on the property market, it’s still early days and to react to early statistics may be more damaging for consumer confidence in the future. Importantly, there have been no major shifts in property prices as of yet. But as I indicated last week, a decline in prices is expected – somewhere around 5%. If we’ve got any shot at preserving consumer confidence at this time, it’s best you don’t listen to some pundits out there plucking hit-or-miss projections of 20-30% and higher as it doesn’t help. If we can maintain our confidence in the Federal Government’s handling of this pandemic as indicators show, it will certainly help maintain relative stability in consumer confidence and our property market.