Big bank economists are observing a rebound in people’s willingness to spend on items big and small, after the public stockpiled their savings for months in response to the uncertainty of a once in a century pandemic.
Senior economists at Westpac, Commonwealth Bank and ANZ have observed a sharp rebound in consumer confidence after it was revealed the federal government’s budget will rack up a large deficit in an effort to stimulate an economic recovery.
Consumer confidence lifted by 11.9 per cent to 105.0 in October, according to the Westpac-Melbourne Institute Index of Consumer Sentiment, a telephone survey of 1200 adults across Australia.
“This is an extraordinary result,” Bill Evans said, chief economist at Westpac.
“The Index has now lifted by 32 per cent over the last two months to the highest level since July 2018. (It) is now 10% above the average level in the six months prior to the pandemic.”
The growing confidence was owed to a few reasons, he said. These include the containment of the coronavirus pandemic, the federal budget drafted in response, and an expectation further financial relief is on the way from the Reserve Bank of Australia (RBA).
The trend was echoed in the ANZ-Roy Morgan Consumer Confidence report, which found consumer confidence has rebounded 49.6 per cent since hitting an almost 50 year low of 65.3 in March.
Feeling good about buying a house
People are feeling more confident about their family finances, securing employment and the economy, the Westpac survey found, but it observed another interesting insight: the time for many to buy a house is now.
The ‘time to buy a dwelling index’ jumped by 10.6 per cent in October to 122.2, reaching its highest level since September 2019.
“Of all the results in this … survey, this one is the most surprising and reassuring,” Mr Evans said. “Confidence in the housing market has boomed.”
The sentiment comes as a bit of a surprise given nearly a million people lost their jobs about six months ago, stimulus payments are on schedule to be wound down, and the pandemic remains ongoing.
But economists claim the challenges posed have been met with proportionate responses, such as a stimulatory budget and historically low mortgage interest rates, combined with five months of falling property prices.
Optimism for buying a property in NSW increased by 11.3 per cent, followed by rises in Victoria of 7 per cent and Queensland of 4.4 per cent.
“The levels of the index in each of these eastern states are comparable, indicating a high degree of expectation that the Victorian market is set to reopen,” Mr Evans said.
Backing the growing sentiment is a solid increase in the value of owner occupier loans being issued. The Australian Bureau of Statistics revealed $16.3 billion in loans for 12,302 properties were approved in August, a rise of 13.6 per cent -- the largest increase since records were established 18 years ago.
Expecting interest rates to fall next month
The RBA dropped the cash rate to 0.25 in March, its lowest level in 30 years.
But now there’s an increasing expectation the rate will reach an extraordinary new low with an atypical cut when the board meets next on 3 November.
“One of the likely factors behind the surge in sentiment this month is an expectation that the Board is set to cut the overnight cash rate from 0.25% to 0.10%,” Mr Evans said.
“Communication from the Bank over the last few weeks points to this outcome.”
The extraordinary cut will help the nation’s central bank meet its targets for employment and inflation, he said.
“Recently, we have detected a change in attitude indicating more confidence that the plumbing of the financial system can operate effectively at an even lower set of policy rates,” Mr Evans said.
“With that in mind … there seems to be no reason for the (RBA) Board to delay its decision.”
From saving to spend, spend, spend
The federal government’s budget may blow out the deficit to $213.7 billion, but it appears the spending spree has left people feeling optimistic about the economy.
Outlook over the next year jumped by 24 per cent in October, while the five year economic forecast increased by 14 per cent.
“The surge in the five year outlook has taken this sub-index to its highest level since August 2010,” Mr Evans said.
“Respondents are likely to be seeing the Budget as setting a foundation for a sustained lift in Australia’s economic fortunes.”
People felt better about family finances, the survey found. About 6.2 per cent more people believed they were better off financially today than they were a year ago, and about 9.4 per cent believe they’re on track to be better off in five year’s time.
One reason for this increase could be the “stunning lift” in confidence around job security. A 14.2 per cent increase was registered for October, reaching levels not seen since early 2019.
“Despite media warnings about the looming ‘fiscal cliff’, respondents have become markedly more confident about job security,” Mr Evans said.
“In particular, those over 45 saw a 20 per cent lift in confidence – that was despite job-related measures in the Budget only providing specific support for younger employees.”