Economy

Consumer confidence on the rise, but will it translate to spending ahead?

John Nelder /

Consumer confidence has jumped to a four-year high, but experts say the businesses that stand to win from these figures will be aware the situation is more complex than shoppers being willing to spend.

The Westpac-Melbourne Institute consumer sentiment index rose 1.8% in the month of December to reach 105.1 in January, the best monthly index read since 2013. 

Consumer sentiment for the economy is particularly strong, with mood for the next five years’ outlook up 5.4% for the month and mood for the next 12 months up 2.6%.

Consumers’ job outlook, too, is similarly rosy – at its best level for more than six years.

Meanwhile, latest figures from Roy Morgan show business confidence is also on the rise – up three per cent in December.

Discussing the numbers, founder of Adore Beauty Kate Morris says the nation’s strong economic fundamentals are good news for business owners.

“Why shouldn’t there be confidence here? House prices haven’t fallen in a hole like people keep talking about, interest rates are low, unemployment rates not too low.  How much better do you want it to be?”

However, Morris believes it’s the businesses that provide the best offerings that win over hearts and wallets – and not all retailers are making it easy on themselves.

“What we see is that the sorts of retail offerings that have an experiential aspect to it are the ones that give consumers the information and tools they need to make a decision,” she says.

“But there’s still a lot of restrictive environments out there where products are tucked away behind a counter, making it hard to compare one brand to another. That sort of thing doesn’t perform well these days because consumers want to be more empowered and informed.”

Numbers should be read with caution given family finances

Managing director at Market Economics Stephen Koukoulas says the consumer confidence numbers are encouraging overall, but must be read with caution.

“There are good signs, but I’d love to see it continue for another three to six months before popping the champagne,” he says.

He does feel, though, there are several positive factors driving the numbers.

“We’ve had good job numbers in the last 12 months, even though we’re not seeing more wage rises, so that could be a factor,” he explains.

“We’ve also seen steady interest rates and improving housing affordability as the market cools off. The stock exchange has also been quite strong, so for those with a few bucks tied up in super that could be making them feeling better.”

But from a business perspective, whether that sentiment can translate into consumer spending going forward may well be contingent on family finances, especially with regard to household debt.

The numbers were tempered somewhat by mixed views around family finances. The “family finance vs a year ago” sub-index showed consumers were less positive compared with a year ago, with the reading slipping 1.1% to 88.6. 

“A lot of consumers have negatively geared housing. They did have interest only loans, but with the tightening in regulations they’re now saying ‘gosh I’ve got to pay interest and principal now,'” Koukoulas explains.

He also points to the headwinds facing retail.

“In the small business space and also for department stores, it’s hugely competitive right now with Amazon coming in.”

However, Morris believes Amazon’s threat has been exaggerated.

“I think Amazon’s been overhyped to the point of ridiculousness,” she says.

 

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John Nelder

John Nelder is a former SmartCompany journalist.

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