Consumer confidence fell by 5.3% in November according to the Westpac Melbourne Institute Index of Consumer Sentiment, with the index falling from 117 points to 110.7 in November.
But Chief economist Bill Evans said the result was “surprisingly resilient” and that the bank had expected a significantly larger fall given the RBA increased the official cash rate last week. He says consumers are responding to rate increases differently than they have in the past.
“Prior to the RBA’s announcement the average variable mortgage rate stood at 7.4%. As we saw in the 2005 – 2008 period, increases moving rates above that “normal” level are usually deeply disturbing for consumers.”
“During the 2005- 2008 period variable mortgage rates increased from 7.05% to 9.6% with the overnight cash rate increased by 25bps on eight separate occasions. The average monthly fall in the Index in response to those rate hikes was 9.3%.”
However, the news isn’t good for retailers, with 34% of respondents saying they plan to spend less on Christmas presents than they did last year. A further 53% said they would spend the same, and is only a marginal improvement from last year.
Evans also notes that the rise in consumer confidence has not coincided with a rise in consumer spending, saying “we have taken an intense interest in the components of the index”. The research shows there is a gap opening between actual economic outlooks, and how households perceive their economic positions.
“The economic outlook components generally fall sharply when interest rates are increased but recover quickly during periods of steady rates. Underlying the buoyancy of the economic outlook is the general assessment that the mining boom will be positive for the economy but not necessarily helpful to households’ own financial position.”
Evans also notes that in the results for November, the index for the “12 month economic outlook” has dropped by 9.8%, while the index for the “five year economic outlook” has dropped by 6.4%. Additionally, the component measuring respondents’ assessments of the financial position compared to a year ago has dropped 10.2%.
Evans says that only the Commonwealth Bank increased its variable mortgage rates last week, which may have caused confusion among borrowers.
“Evidence that the rate hike from the RBA and the response from one bank affected borrowers confidence showed in the 6.8% fall in the confidence of those respondents holding a mortgage compared to a 3.1% fall from those who are tenants.”
However, several other factors have offset this result. The strong Australian dollar, which remains above parity, has buoyed consumer confidence, while the share market has risen by 2.5% since the October survey.
Evans says Westpac would be surprised if the RBA chooses to raise rates in December, but the banks’ response to last week’s rise will play a part in that decision, he said. “On balance, we do not expect another rate hike…until the June quarter 2011.”
Meanwhile, Qantas has been slammed with a $12 million fine for taking part in a price-fixing scheme. British Airways, Air France, Japan Airways and seven other airlines have been fined due to fixing prices between 1999 and 2006, the European Commission found.
“The fact that fuel prices were increasing, or that security costs rose after the 2001 terrorist attacks, is not an acceptable reason to stop competing against each other,” European Competition commissioner Joaquin Almunia said in a statement.
“If companies’ costs increase, it’s normal that their prices also increase. But companies cannot collude to fix the price for customers.”
The company has said that it will make a statement later in the day.
The Australian share market has opened flat this morning, following weak leads from Wall Street where stocks remained subdued due to poor performances in the financial sector.
The benchmark S&P/ASX200 index was up by only two points or 0.06% to 4743.7 at 12.20 AEST, while the Australian dollar lost some ground due to a bond auction in the US, and sat at $US100.77c this morning.
AMP shares gained 0.4% to $5.25, while Commonwealth Bank shares lifted 0.2% to $48.35. ANZ rose by 0.3% to $23.81, as Westpac shares dropped 0.3% to $22.09.
Meanwhile, housing finance commitments rose by a seasonally adjusted 1.3% in September, according to the latest figures from the Australian Bureau of Statistics.
The total value of home loans for owner-occupied homes rose by 0.6% to $13.75 billion, while the value of loans for investment homes rose by 1.7% to $6.63 billion.
The number of commitments to purchase new homes dropped by 3.2%, with commitments to buy established homes rose by 1.6%. The commitments for building homes rose by 0.5%.
Karoon Gas has entered a trading halt, with the company saying it will make announcement soon regarding its South American business.
The statement comes after the company said last month it could raise up to $US1 billion in an IPO in Brazil. The company has requested a halt until either 12 November or when a statement is made.
Warrnambool Cheese and Butter Factory Company Holdings has said Bega Cheese will take a 15% stake in the company with plans to raise up to $37 million.
“The cornerstone investment by Bega Cheese, together with the entitlement offer, will allow WCB to reduce significantly its debt and provide capital to pursue future growth options,” WCB chairman Frank Davis said in a statement.
Chevron Corp has said it will buy Atlas Energy for $US3.2 billion excluding debt, with the company to pay $US43.34 per share.
The company will assume net debt of about $US1.1 billion. Vice chairman George Kirkland said in a statement the purchase is a good fit.
“This acquisition is the right opportunity for Chevron…We are acquiring a company that has one of the premier acreage positions in the prolific Marcellus.”
Meanwhile, stocks on Wall Street have remained flat due to poor performances in the financial sector. The Dow Jones Industrial Average fell 60.09 points or 0.53% to 11,346.75.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
