Aussie Consumers Looking on the Bright Side

MELBOURNE AUSTRALIA 19 December 2006 - No one is going to keep the Australian consumer or the Australian economy down... or the Australian cricket team. We recall that famous and oft repeated song from Monty Python, "Always look on the bright side of life."

Last week, as reported by JP Morgan, "Australia's consumer confidence index rebounded strongly in December, bouncing 11.8%m/m [month on month] after a 9.7% post-RBA-rate-hike decline in November. The Westpac Melbourne Institute consumer confidence index therefore more than reversed all of the previous month's decline. All five components of the headline index rebounded in December, helped along by lower petrol prices, the RBA leaving interest rates unchanged, a solid labour market and a dream start for Australia in the Ashes cricket series."

See, we told you it was all to do with the cricket. The JP Morgan report went on to say, "One interesting point of note from today's release is that it took just one month to more than repay the November (post-RBA rate hike) drop in confidence - it took two months for consumer confidence to return to the levels seen before the August rate hike, which triggered a 16.2% drop in the confidence index."

It seems as though the Aussie consumer is just fine and dandy with the way things are running along at the moment. Interest rates have risen over the last two years, and the housing market has slowed from its peak. Although figures show that residential auction clearance rates have picked up again following their slump to the doldrums in 2005. But even though consumers may not have seen the wild price increases - except for Western Australia which is up around 40% in the last year - that they experienced during the late 1990's and early 2000's, they have had the satisfaction of being compensated by a rising stock market.

In plain terms, although house prices may have declined, unless you are on the market to sell and as long as you are able to maintain the mortgage repayments, most people would still be under the perhaps false impression that their home is worth the same as it was two years ago. When they come to sell, then there may be a nasty shock, but until then... who cares.

The economy is still booming, there are still plenty of jobs out there, the stock market is rising, foreign companies are investing ever greater amounts in the Australian economy, and the Australian dollar is back at high levels - talk of it reaching par with the US dollar is again infiltrating the market. Will it happen? Who knows, it's been here several times before during the last three years but hasn't had the stamina to stay there.

But back to the consumers. The JP Morgan report goes on to say, "The largest monthly gain in December was on the outlook for the economy over the year ahead, which bounced 28%m/m (after falling 21%m/m in November). The two indices measuring family finances versus a year ago and the outlook for family finances over the year ahead both paid back last month's decline (rising 5.7% and 9.4% respectively). Consumers are feeling more chipper leading into the holiday season because the index measuring whether now is a good time to buy a major household item rose 12%m/m - a good sign for retailers."

It finishes with, "At 106.5 in December, there again are more optimists than pessimists in the survey (November posted a reading of 95 and 100 is the break- even point). Confidence is likely to be stable around this level into 2007, but recent history suggests that any further rate hikes or spikes in petrol prices will have a material impact."

The only fear on the horizon appears to be among the market watchers. The more "chipper" the consumer gets the harder the fall when the economy finally stalls. But, for the moment the band is playing and the consumer is in good voice... "Always look on the bright side of life...(etc...)"

P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Related Articles:

• None Found