Consumer sentiment drops 5% in September: Economy Roundup

Consumer sentiment has taken an unexpected dive during September, with the Westpac-Melbourne Institute Index falling 5% to 113.2 points from 119.2 in August.

The drop negates the 5.4% gain recorded during August, putting the index back on par with its levels during July. Westpac economist Bill Evans said in a statement the result was a “mild surprise”.

While we were mindful of the high starting point for the Index we expected that the news over the month had been sufficiently positive to ensure a modest further increase.

“Consider the positive news: the Reserve Bank kept interest rates on hold for a fourth consecutive month; there was a sharp improvement in the labour market with the unemployment rate falling to 5.1% and 53,000 new full time jobs being reported.”

“Both the equity market and the Australian dollar rallied strongly in the two weeks leading into the survey and, finally, we saw a resolution to political uncertainties with a minority government being formed.”

As a result, Evans said the institute may have “overstated” the August reading. He says that although consumers are much more confident than they were during the rate hikes late last year and early this year, they are relatively cautious.

All components of the index fell in September, with the component measuring economic conditions over the next 12 months falling by 7.2%. The index assessing family finances also fell 1.1%.

Another indicator of caution comes alongside the index measuring household savings. Prior to 2008, only about 10-12% of households said “paying down debt” would be the wisest thing to do with savings. Among 2008-09, that number jumped to 20-25%. That number is still at 21%.

Overall, Evans said Westpac maintains its view that the RBA will not raise rates until February next year, with the Australian economy needing to demonstrate “an orderly transfer of the growth momentum from the public to the private sector…raising rates as early as October would put that transition at risk”.

New figures from the Australian Bureau of Statistics reveal the seasonally adjusted number of total dwellings commenced during the June quarter rose by 0.8%.

The figures also reveal the estimate for private sector housing starts fell by 3.9% in the June quarter, while the estimate for other residential buildings rose by 11.5% in the June quarter.

Meanwhile, new figures from the Department of Education, Employment and Workplace Relationships has found the skilled vacancies index was 16% higher than in September 2009, rising to 46.2 points.

Associate professionals were down by 4.7%, with professionals also falling by 1.8%. Trades increased by 1%, with increases recorded in advertised vacancies for eight of the 18 skilled occupations.

Shares higher, dollar hits two-year high

The Australian sharemarket has opened half a percent higher this morning despite weak leads on Wall Street, where investors are still disappointed regarding the pace of the economy recovery.

The benchmark S&P/ASX200 index was up 25 points or 0.55% to 4650.1 at 12.20 AEST. However, the Australian dollar has continued its climb, reaching a two-year this morning at US94c.

NAB shares have gained 1.8% to $25.67, while Commonwealth Bank shares gained 0.1% to $53.66. ANZ rose 0.5% to $24.15 as Westpac rose 0.9% to $23.57.

Meanwhile, NAB has terminated its agreement with AXA SA to acquire the Australian and New Zealand businesses of AXA following a block from the ACCC.

“Although we are disappointed with the decision of the ACCC we have a strong position through MLC and NAB’s other wealth management businesses. NAB remains very committed to participating in the wealth management industry which is an important part of the bank’s future,” NAB chief executive Cameron Clyne said in a statement.

“However, considering all the options, continuing with this agreement is not in the best interests of shareholders.”

Meanwhile, AGL Energy has said it plans to bid for power generation assets being put up for sale by the state New South Wales government.

“The process is on,” AGL managing director Michael Fraser told Reuters. “Bids are due on the first of November. We expect to be bidding for the assets,” he said.

In the mining industry, RBS has said in a research note Fortescue Metals will need to raise $US10 billion to fund “aggressive” expansion plans.

‘While the pipeline may be considered optimistic, FMG has proven it can deliver world-class projects (when many doubted its ability), and note they are all worthy of serious consideration,” the note said.

Potash not considering third-party sale

Reuters has reported fertiliser group Potash is not considering a stake sale to a third-party, according to investors.

The report claims investors who met with Potash chief financial officer Wayne Brownlee reported the company was not interested in selling treasury stock as a blocking stake or selling any Potash mines.

Also in New York, stocks have fallen despite new retail sales increased by 0.4% in August. The Dow Jones Industrial Average fell 17.64 points or 0.17% to 10,526.49.