Consumer and business confidence are moving in different directions.
Tuesday the National Australia Bank’s monthly survey of business showed confidence falling by a record amount and business conditions worsening yet again.
It was a gloomy report as the bank forecast a slowing in the economy, falling interest rates as a result and a rise in unemployment.
But yesterday the Westpac/Melbourne Institute monthly survey of consumer confidence showed a sharp improvement, thanks it sees to rate cuts, falling petrol prices being noticed at the pump and talk of federal government stimulus of the economy from next month.
But it’s not just here: in the US, a survey released overnight shows that the rate cuts and election result have had a dramatic impact on consumer confidence there.
Further confidence surveys are due to be released shortly in the US.
But it’s of interest that the flood of negative news about US retailing continues, with Circuit City going broke, Macy’s reporting a third quarter loss and Best Buy, the biggest electrical and homewares group (the US Harvey Norman) warning of lower sales and earnings as America heads into the Thanksgiving-Christmas retailing period.
It’s clear there’s a bit of a disconnect between what consumers are saying in the US and what they are doing with their money.
Here the monthly Westpac-Melbourne Institute survey showed consumer sentiment rose 4.3% in November to 85.5 points from 82 points the previous month. The Roy Morgan confidence survey picked up a similar small rise last week as well.
But confidence still remains negative below the 100-point mark.
The survey was done last week, and took into account the latest Reserve Bank 0.75% rate cut.
Westpac Chief economist, Bill Evans, warned in a statement that we should not get too excited about this rise. "Despite all the ‘good’ news the index is still 22.6% below last year’s level and 14.5 index points below the level where optimists and pessimists are in equal numbers,.
"The current period represents the longest period since the recession in 1990/91 when pessimists have consistently outnumbered optimists."
Despite the small improvement Westpac late yesterday changed its interest rate forecast (no doubt prompted by the NAB’s cut in its cash rate forecast to 3.75%).
It now sees the cash rate falling to a low of 3.50%, instead of 4% in 2009.
Debt futures markets are currently pricing in a cash rate of 3.25% as early as March 2009. The cash rate currently stands at 5.25% and is expected to fall by at least 0.50% next month after the RBA board meeting.
Mr Evans said key to Westpac’s revision was household and business lending rates.
And in the US the Investor’s Business Daily and TechnoMetrica Market Intelligence said their economic optimism Index jumped 9.7 points to 50.8 in November, the biggest one-month increase in the index’s eight-year history.
Index readings above 50 indicate optimism; below 50 point to pessimism.
The survey was done last week, but it might be a one hit wonder as it was carried out before the poor October jobs report and more concerns about the fate of General Motors and the car sector.
"Consumer confidence made big gains this month on the back of falling gasoline prices, the government’s economic rescue and stabilization plan, and even hope regarding the November election," said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, IBD’s polling partner.
"However, our polling does not account yet for the impact of recently released unemployment figures and negative economic growth indicators. These may temper consumer confidence next month."
Meanwhile Australian Bureau of Statistics figures yesterday showed no worries from wages with the wage price index up 0.9% for the September quarter and 4% for the year to September. With growth under pressure these figures though are of less importance.
More important was the latest lending finance numbers, this time for the month of September, which showed a fall in the value of owner/occupied housing commitments excluding alterations and additions of 1.9% (no real surprise); personal finance with a 1.5% rise in the value personal finance commitments due to a rise in revolving credit commitments (up 3.4%), while fixed lending commitments fell (down 0.8%).
That means more margin lending was done in September and is a reversal of the almost constant decline in margin lending for most of 2008 so far.
The ABS said business finance was solid with a 14.1% rise in the seasonally adjusted value of total commercial finance commitments. This was due to a rise in both fixed lending commitments (up 20.2%) and revolving credit commitments (up 5.4%). But lease finance commitments, seasonally adjusted, fell by 4.0%.
The lending finance figures only included some of the impact from mid September onwards from the credit freeze: the October figures will make more interesting reading next month.
