Is the consumer finally starting to come out of their shell? Gottliebsen

While the analysts bemoaned yesterday’s higher unemployment figures because they did not move down as the analysts expected, I took the reverse view. For the first time in six months, I saw tangible early signs of a change in consumer behaviour.

It will be months before the analysts and the statisticians locate this trend and I must admit that my evidence is a bit tentative but I think I am right.

I have a number of bellwether business indicators that help me understand what is really happening, instead of the garbage that is sometimes used by people who rely only on statistics. One of those bellwethers is probably the largest non-retail consumer marketer in the country (retailers can be hard to fathom at the moment because it depends how the internet is affecting their business).

As you would expect, this bellwether group has had its tail between its legs for most of calendar 2011 and looked with horror as the Reserve Bank zealots talked about lifting interest rates. But in August, the group had a great month and the first week of September has been just as good. They are crossing fingers and toes that this is not an aberration but my feeling is that specific events have taken place in the last two months which are causing some consumers to change their behaviour.

Moreover, the Roy Morgan consumer confidence index is picking up the same trend. Today’s Liddington-Cox graph shows the pattern:

This confidence index has increased for the second straight week to 113.1 (up 2.5 points) – now at its highest level for three months. However, consumer confidence is still 9.9 points lower than a year ago.

The rise comes on the back of increasing confidence Australians have about their personal financial situations over the year ahead, with 38% (up 3%) of Australians expecting to be ‘better off’ financially this time next year – the highest since early May 2011.

You will remember that I alerted readers just over a month ago that employment was falling and unemployment rising on the basis of the Morgan figures. Morgan is usually one to two months ahead of the statistician and so the official employment figures we saw yesterday merely confirmed the earlier Morgan figures.

Why would some consumers suddenly be more confident? Two or three months ago, highly-borrowed middle income Australia was really under the pump as they looked at higher interest rates, power prices, a carbon tax and a flood levy.

But thanks to the board of the Reserve Bank, interest rates did not rise and with the help of Business Spectator and Westpac, people are now talking about lower interest rates.

Lower official interest rates may or may not take place but what has declined is interest rates on fixed-rate borrowing from banks. Some of my mortgage mates around the country are telling me they are flat-out shopping fixed rate loans for customers. Suddenly, middle income Australia can actually cut their rate via a fixed-rate loan and more importantly, they can lock in certainty for, say, three years.

Even if they don’t lock in rates, they feel they can. So now some segments of middle income Australia do not have to save as much and can spend money on discretionary areas.

But before you get carried away, new housing construction is still very bad. In Victoria, new housing is down about 20%, partly reflecting big rises in the price of “low cost” land and toughness by banks. Queensland is down around 30% because of the collapse in the tourist industry. However, NSW and South Australia are holding. Those big falls in Queensland and Victoria will soon start to affect building employment.

These are early days, but we need to be on the alert that at least some consumers are stirring. Of course, events in Europe could change that landscape.

This article first appeared on Business Spectator.