Consumer confidence is a mixed bag currently. Consumers are feeling good about the here and now, but concerns about the future are clearly growing. And now, it includes concern about respondents’ own future financial situations, not just the broader economy. Indeed, consumers haven’t been this pessimistic about their own and their family’s financial outlook one year ahead since mid-2012, and this data series has only been below the current level of 20% once since 2008.
A key question is whether this growing concern about the outlook will lead to consumers reining in their spending. However, encouragingly for retailers, the proportion of respondents who think it’s a good time to buy a major household item increased and is at a level consistent with solid growth in spending.
The economy is facing a mix of headwinds and tailwinds at the moment. In our view they roughly cancel out in aggregate – we see the economy continuing to grow at a 2½-3% pace. But if households get spooked into a higher saving rate, this will dampen growth – a positive development from a medium-term standpoint, as it would build resilience to adverse events.
Indeed, our confidence composite gauge (which combines business expectations and intentions with overall consumer sentiment) suggests a slowing in GDP growth by year end (figure 2). Such a development would not be welcomed by the Reserve Bank, who is struggling to get inflation sustainably up to the inflation midpoint. We continue to see an eventual OCR cut as a very real possibility.
