Consumers plan a modestly increased Christmas outlay this year versus last and increasingly think that now is a good time to buy a house. Those are two of the findings in Westpac’s excellent November Red Book. No matter what business you’re in, reading this is worth 10 minutes of your time. It is the defining document on current consumer attitudes. Firstly, houses:
Not surprisingly, consumer views on ‘time to buy a dwelling’ improved considerably in the wake of the RBA’s November interest rate cut. The index rose 6.5% to 125.8 – strongly positive territory, above the long run average of 122.3 and the 10yr average of 110.4.
That could be the cue for a housing upturn. However, as with the headline sentiment results, there are some important caveats.
Firstly, the rally needs to be sustained. As with headline sentiment, that will depend at least partly on how follow-on moves from the RBA stack up against consumers’ expectations.
The last three rate cut cycles saw total cuts of 425bps, 200bps and 250bps. Westpac expects the current cycle to see a total of 100bps with a steady tempo rather than rapid easing.
Secondly, job loss fears will need to ease further. A simple model of fi nance approvals based on the ‘time to buy a dwelling’ index and unemployment expectations suggests the current mix will see soft demand well into 2012.
We suspect more rate cuts and improvements in both buyer perceptions and/or job security will be required to establish a housing upturn. Even then debt/risk aversion may mute the response.
And Christmas spending plans:
The state breakdown shows spending plans improved in NSW, Vic and WA but were pared back in Qld and SA. NSW and WA consumers are the most ‘generous’ givers with over half of consumers in these states planning to spend over $500 on gifts. That said, state estimates of average planned spending often ran counter to shifts in plans vs a year ago, making them difficult to interpret. Other detail suggests the festive season will be a notch or two tighter for those in the ‘mortgage belt’.
With several years of data now available it is possible to make some basic observations about Christmas spending plans.
Firstly, they are closely linked to views on ‘family finances vs a year ago’ with a 90% correlation compared to 15-66% for other sub-indexes. That suggests consumers plan to ‘spend within their means’ although in recent years it may also reflect a reluctance to run-up additional debt.
Secondly, responses give a useful guide to actual spending. If we exclude 2008, which was gazumped by fiscal payments, per capita spending on non-food retail items has moved in line with the survey responses. As a rough guide it points to a fl at 2011 in per capita terms (+1.2%yr in total spending) – a ‘tipsy’ rather than ‘merry’ Christmas.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
