A week after the Reserve Bank again lifted interest rates and two weeks after the September quarter consumer price report showed a 7% plus rise in the annual rate of inflation, consumer and business confidence has slumped according to surveys from three major banks released on Tuesday.
Falling house prices are adding to the growing feeling of doom and gloom about in the media, regardless of the fact that the Australian economy remains better placed that others, with lower (but still too high) rates of inflation, smaller rate rises, a strong jobs market and solid trade account.
Real wages and personal income though is under pressure and the negative’ wealth effect’ from those weakening house prices is also playing a part.
So it’s no wonder that business confidence, as tracked by the National Australia survey each month and the latest survey of consumer confidence from Westpac and the Melbourne Institute, as well as the ANZ Bank, had negative stories to tell.
The Westpac-Melbourne Institute index of consumer sentiment released yesterday slid 6.9% in November from October, to be down almost 26% on a year earlier.
The index reading of 78.0 meant pessimists greatly outnumbered optimists and it is now back to lows not seen since the start of the pandemic in 2020.
That result was echoed by a separate weekly survey from ANZ which showed a drop of 1.5% in its sentiment index last week and a rise in inflation expectations to 6.8%, the highest since the report began in 2010.
And the NAB survey showed business confidence fell 4pts to 0 index points, and is now below the long-run average.
Confidence fell sharply in transport & utilities, as well as in mining, manufacturing, finance, business & property, recreation & personal services, and wholesale. Across the states, confidence fell sharply in Vic and declined in NSW, Qld and SA.
“Despite the strength in conditions, confidence has been falling for several months as headwinds have weighed on the outlook for the global economy and Australia,” according to NAB Group Chief Economist, Alan Oster.
“Confidence is now below the long-run average at 0 index points, which effectively means that just as many firms in our survey are pessimistic as optimistic.”
“The easing in confidence was in line with some softening of leading indicators, with forward orders softening this month from +14 to +7 index points,” said Mr Oster.
“That is still fairly robust but lower than the strong levels of forward orders seen recently and could be a sign that the clouded economic outlook is beginning to affect activity.”
But, so far at least, this negativity hasn’t damaged business conditions.
The NAB reported that business conditions remained strong across industries and states, down just one index point to a reading of +22 index points last month.
The NAB said trading conditions fell 6pts to a still-strong +31 index points, and employment fell 2pts to +14 index points, while profitability rose 1pt to +22 index points
“Conditions remained strong in October with demand still very elevated and profitability holding up,” said NAB Chief Economist Alan Oster. “As we have seen in official data, consumers continue to spend despite headwinds from inflation and interest rates, and that run of strength looks to have carried on into October.”
“Conditions remain fairly robust across the states and across sectors,” said Mr Oster. “There was something of a correction in wholesale and retail conditions this month from very high readings in the previous survey but they both remain at very strong levels, as do conditions in mining, transport & utilities, and recreation & personal services.”
“The easing in confidence was in line with some softening of leading indicators, with forward orders softening this month from +14 to +7 index points,” said Mr Oster.
“That is still fairly robust but lower than the strong levels of forward orders seen recently and could be a sign that the clouded economic outlook is beginning to affect activity.”
The NAB said costs measures were mixed. Purchase costs growth rose to 4.1% in quarterly terms (from 3.7% in September). Labour costs growth moderated further, to 2.7% (from 3.1% in September).
Inflation measures remained elevated with overall price growth running at an unchanged 2% in quarterly terms.
Retail prices accelerated again, to 3%, while price inflation for recreation & personal services eased to 1.5%.
“Purchase costs continue to be a source of upward pressure but labour cost growth continued to ease in the month,” said Mr Oster. “It increasingly looks as if the very strong labour cost print in July was an outlier driven by the increase in minimum and award wages. Nonetheless, labour costs remain elevated and underlying wage growth is clearly a driver.”
“Strong price growth in October reinforces our expectation that inflation will continue to rise strongly through Q4,” said Mr Oster. “Retail price growth was higher again in October, signalling that goods-side inflation remains a key challenge.”
“Overall, the survey indicates demand remained strong through October but highlights that headwinds are beginning to weigh on businesses’ expectations for the future,” said Mr Oster.
“We do share these concerns with consumption expected to soften materially in 2023 as inflation and higher interest rates take a toll. Still, a strong labour market will be an ongoing source of support for households and for now we don’t foresee a recession for Australia” Mr Oster said.
