Australian consumers would seem to be a bit less confident than business, but that is all to do with the timing of the two main surveys.
The results of the latest Westpac/Melbourne Institute survey of consumer sentiment, released yesterday, showed a fall in the latest index of sentiment, while the NAB survey, released Tuesday, showed business confidence hitting a seven year high last month.
The three interest rate rises from the Reserve Bank were blamed for the fall in consumer confidence levels.
Westpac, along with the Melbourne Institute, run the index of consumer sentiment which fell 3.8% fall to a still solid 113.8 points in December, from 118.3 points in November.
Despite the second monthly drop, the index remains 23.7% up from a year ago.
The difference with the NAB survey of business was that it was conducted in November before the third rate rise from the December 1 Reserve Bank board meeting, while the consumer sentiment survey was taken from November 30, the day before the rate rise decision, to December 6, well after Westpac, and then two days later, the ANZ and CBA lifted their housing rates.
That meant it also included the period of criticism and intense public comment about the move by Westpac to lift its standard variable home loan rate by 0.45%, compared with the RBA increase of 0.25%.
Higher than the RBA rate rises were also announced on Friday by the CBA and ANZ, while the NAB increased its rate by 0.25% (and appears to some consumers not to have moved rates at all, such as has been the concentration on Westpac).
So while the RBA’s third rate rise probably had an impact on confidence, it can be argued that Westpac had a substantial negative impact as well with its big rate rise.
But Westpac chief economist Bill Evans said in a statement that the fall in the index was "surprisingly modest" following the recent rate rises.
"We expected that there was a real possibility that the index would fall much more sharply than the 3.8 per cent which it has registered," Mr Evans said in a statement this morning.
"Note that after the RBA tightened by 25 basis points in March 2005 the variable mortgage rate was increased to 7.3 per cent from 7.05 per cent and the index fell by a massive 15.5 per cent.
"Each subsequent increase in mortgage rates over the course of 2006 and 2007 generally saw "double digit" falls in the index."
Mr Evans said households were holding greater debt relative to their incomes and higher interest rates would have a greater impact.
"A closer inspection of the components of the index shows that those folks holding a mortgage have responded much more negatively to the rate increases than those who are not holding a mortgage," he said.
"Confidence amongst those with a mortgage fell by 8.9 per cent while confidence of those who are renting actually increased by 1.6 per cent while those wholly owning their homes registered a fall of 4.1 per cent."
"We have little doubt that we are nearing a point where the level of the variable mortgage rate will start to elicit a much more negative response across all households but the evidence from this survey is that we are not there yet," he said.
After the solid ANZ job ads report on Monday, the still robust levels of business confidence and business conditions, today’s employment figures and unemployment rate from the Australian Bureau of Statistics will tell us a lot about how the economy is finishing 2009.
