Originally published by AMP Capital
- Consumer confidence was little changed in December, rising just 0.1% to an index reading of 104.4 according to the Westpac/MI survey.
- By contrast business confidence slipped further in November to a reading of 3, according to the NAB business survey.
Neither are particularly strong - consumer confidence is now a bit above its long term average whereas business confidence is now a bit below. However, it is worth noting that after years of business being more optimistic than consumers – in fact even since the 2013 election - this now appears to be reversing which on its own may be a positive for consumer spending. The problem though is that with house prices likely to fall further in Sydney and Melbourne and wages growth likely to remain weak its hard to see consumer confidence rising much from here and any further slide in business confidence may start to threaten business investment.
Meanwhile, when consumers were asked about the wisest place for savings they continue to nominate banks (31% of respondents) and paying down debt (23%) in contrast to shares (which has fallen to just 6%) and real estate (which has fallen to 10%) indicating they remain very cautious, as has been the case since the GFC. The low level of interest in relation to real estate and shares is understandable given recent weakness in both and could be interpreted as a positive sign from a contrarian perspective, but this can take a long while to be borne out.
Implications for interest rates
Since the moves in both consumer and business confidence were minor they are unlikely to have much impact on the RBA’s thinking. That said the fall in business confidence bears watching given the risk that it may start to impact business investment plans and that the economy is somewhat reliant on a pick up in business investment to keep growth going as the housing cycle turns down.