Surveys bode well for growth despite slip in confidence
Consumer confidence has remained at three-year highs despite slipping slightly this month, in what economists said could be a sign that non-mining sectors of the economy are on the road to recovery.
Sentiment fell 2.1 per cent in October after rising 4.7 per cent last month, following the federal election, the monthly Westpac-Melbourne Institute survey released on Wednesday found.
It followed a second month of improving business confidence and came amid a strengthening housing market.
"This is a solid result," Westpac chief economist Bill Evans said. "Apart from last month it is the highest read for the index since March this year."
Economists said the elevated levels of consumer confidence, coupled with strengthening business sentiment, meant the Reserve Bank could keep the cash rate on hold for some time before considering a further easing of monetary policy.
The surveys "provide some early evidence that the rebalancing of Australia's economic growth may be extending beyond the housing market", HSBC economists Paul Bloxham and Adam Richardson said.
Financial markets were pricing in an 18 per cent chance of a cut to the cash rate in November, down from a 25 per cent forecast last week, Credit Suisse data showed.
At the same time, the survey's respondents remained cautious about their own finances, with forward-looking sub-indexes all falling for the month.
"This lack of response around people's assessments of their own finances raises some doubts as to whether the healthy reads of the overall index will spur consumers out of their current spending torpor," Mr Evans said.
It suggested that further rises in consumer confidence, coupled with a lower Australian dollar and signs of an improving labour market, might be needed to translate the improved sentiment into stronger consumer spending.
The latest survey came as the world's biggest bond fund, Pimco, said the Reserve Bank might need to ease monetary policy again as the mining investment boom fades.
"Until we see some meaningful signs of a growth hand-off from the mining sector to a new balance sheet that has the capacity to expand, our base case calls for sub-trend growth outcomes in Australia," Pimco's Adam Bowe and Robert Mead said.
"In this environment, we expect that the RBA will have to keep interest rates low for an extended period, and likely lower them further, supporting bond prices over the cyclical horizon."
Mr Evans said the slight fall in the index this month could be due to an expected slide in positive sentiment after the federal election in early September, weakness in the sharemarket and a rise in the Australian dollar during the week of the survey. He said concerns about a possible US government default on its debt obligations could also have weighed on sentiment.
The survey found respondents were less confident about their personal finances over the 12 months, with the sub-index falling 5.5 per cent. Respondents said their family finances were 0.7 per cent better than a year ago.
Confidence among Labor voters fell 12.1 per cent over the past month. Sentiment among Coalition voters, who saw their party elected into power, jumped 7.7 per cent from September. Sentiment was up 36.9 per cent for Coalition voters and down 14.2 per cent for Labor voters over the past year.