The backdrop of a pandemic is unlikely to affect people spending money over the Christmas holidays -- and that could include signing the deed to a new house.
People didn’t want to spend their money at the start of the COVID-19 pandemic, but relief measures have buoyed their spirits and pushed consumer confidence to a high not seen in seven years, according to the Westpac-Melbourne Institute Index of Consumer Sentiment.
The monthly index, based on a national survey of 1200 adults conducted in the first week of November, lifted by 2.5 per cent to 107.7. The index is now 35 per cent higher than it was in August, and at a high not seen since November 2013.
“Given the high degree of uncertainty this Christmas, and the headwinds from the high unemployment rate, it is a very encouraging sign that Australians are planning for a ‘normal’ Christmas,” Bill Evans said, chief economist at Westpac.
Similarly, the ANZ-Roy Morgan consumer confidence rating increased over the week. Its level of 103.11 still trails the 30 year average of 112.6, but has improved by 57.9 since the pandemic caused it to hit a record low in March.
We’re in a pandemic, so why the confidence?
Promising COVID-19 numbers coming out of Victoria left people feeling the pandemic could be managed while allowing some semblance of ordinary life, the Index found.
“Victoria’s ‘ring of steel’ has come down (reuniting Melbourne and regional Victoria) and NSW continues to successfully suppress virus flare-ups,” Ryan Felsman said, senior economist at CommSec.
“... With health authorities’ successfully containing the virus, Aussie households -- armed with record-low mortgage repayments, savings and government income support -- are showing increased appetite for making a major household purchase.”
Confidence in Victoria surged by 9 per cent for the month of November. New South Wales, however, coming off a 17.5 per cent jump a month earlier, dropped by 5.5 per cent.
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A housing resurgence
During the week the survey was being conducted, the Reserve Bank of Australia (RBA) announced the cash rate would be extraordinarily cut to 0.10 per cent, leading to multiple banks offering fixed interest rates below the “psychologically uplifting” 2 per cent.
The boost to housing affordability -- already at its best levels in a decade -- led to the Index’s ‘time to buy a dwelling’ sentiment to jump 8 per cent to 132, its highest level in seven years.
“Without doubt this survey is signalling a strong resurgence in the housing market,” Westpac’s Mr Evans said.
“For now, the boost from record low interest rates is clearly over-riding negatives around high unemployment; the overhang of deferred loans; the prospect of withdrawal of significant fiscal support; slow population growth; and rising vacancy rates.”
Sentiment jumped in NSW by 9 per cent and Queensland by 12 per cent. Even Victoria posted a lift of 5 per cent, indicating a “solid recovery” could be underway.
High unemployment, but Christmas spending within normal levels
The RBA anticipates the unemployment rate will reach 8 per cent by the year’s end, a notable increase over its typical level of about 5.5 per cent.
And the sentiment was reflected in the Unemployment Expectations Index. It posted a 6.2 per cent increase -- indicating an expected rise -- but was 19.7 per cent below its peak following the COVID-19 pandemic in April.
The high unemployment isn’t expected to affect Christmas shopping by much -- due in part to comprehensive government stimulus payments. About 11.5 per cent of people surveyed expected to spend more, while 32.3 per cent of people planned to spend less -- but the latter was within the five year average.
“This will be a particularly welcome sign for Australia’s retailers heading into the critical Christmas high season,” Mr Evans said.
Spending has already increased, CommSec said.
“Aussies have already begun spending with their pay packets boosted this week by the Federal Government’s tax cuts,” Mr Felsman said.
Citing CBA’s credit and debit card data, he said spending had increased by 13.2 per cent in the week when compared to the same period a year ago, and the rise was coming off an increase of 5.7 per cent the week before.