12 September 2019
Bob Cunneen, Senior Economist and Portfolio Specialist
Sources: NAB business survey and Westpac Melbourne Institute consumer sentiment survey.
Confidence is a key leading indicator for economic growth. Our willingness to spend depends upon how confident we are. When confidence is lacking, the economy struggles.
The NAB business survey (blue line) shows that confidence has been falling for the past sixteen months. Australia’s construction and retail sector is particularly weak, reflecting the downturn in the housing market and slow consumer spending. There are also global concerns that trouble the Australian business sector. Global trade tensions, Brexit, China’s slowdown, Hong Kong protests and President Trump’s tweets only add further angst to our anxiety.
Australia’s consumer sentiment is also subdued. The WMI consumer sentiment survey (red line) is also below par. Some of the ‘usual suspects’ can also help explain this. Consumers seem to be worried about the recent run of falling house prices, high household debt and slow income growth.
Admittedly these falls in both business and consumer confidence are troubling. Given that confidence has been falling even after May’s Federal Budget income tax cuts and the Reserve Bank of Australia lowering the cash interest rate to 1% is even more worrying. However, confidence can recover sharply for the strangest of reasons. Maybe the Australian cricket team retaining the Ashes this week is that ray of hope.
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