Source (Roy Morgan)
Now consumer confidence is still at low levels compared to recent history – however, it is now in net “optimistic” territory, a sure sign that consumers are becoming more willing to open their wallets.
Furthermore, the magnitude of the decline in consumer confidence over the June quarter was what first pointed to the sharp decline in household economic activity over this period. The rebound in confidence since the end of July (the early August survey) has been similarly impressive – indicating that there could well have been a sharp increase in household economic activity over the September quarter, relative to June.
However, there is one provision that we have to place on this improving outlook:
The rebound in household confidence stems from expectations – not a real improvement in the household balance sheet position – this is illustrated here:
Source (Roy Morgan)
The red line indicates the net number of respondents who believe they will be financially better off next year. The blue line represents the net number of respondents who are better off than they were a year ago.
The fall in petrol prices has lead to a small increase in people who believe that their income goes further – however, this statistic (the blue line) is still in very negative territory.
The red line has shot up. This is probably the result of:
- Petrol price growth reversing – so people don’t think petrol prices will keep rising,
- An end in sight for food price growth,
- INTEREST RATE CUTS!
- Job retention following a period where people were given the impression that layoffs were on the cards (with widely advertised meat work job losses etc).
This indicates to me that there is now a rising risk that peoples expectations could be thrown the other way – if any of these factors break down. This leaves the RBNZ wondering – if we say we are not going to cut rates very much, what will happen to consumer confidence?
Other discussions: (Rates blog)