Has South Australia’s lack of confidence bottomed out?

The first signs appeared today with the latest BankSA State Monitor survey showing consumer confidence levels have lifted following their decline to a 17-year low in June, underlined by a lift in business confidence.

The September State Monitor shows that consumer confidence is up 5.9 points, from 98.4 to 104.3 points, since the last survey was conducted.

It also brings consumer confidence back into line with the average consumer confidence levels recorded over the past two years, but it is still well below the pre-GFC period of 2007/08 and the post-GFC rebound period of late 2009/10.

The September 2014 BankSA State Monitor is the 55th monitor in a series that has tracked consumer and business confidence in South Australia for more than 15 years.

In line with the lift in consumer confidence, business confidence rose by 5.4 points, from 100.4 index points in June 2014, to 105.8 index points in September 2014, bringing this measure back to its highest level in 12 months.

BankSA Chief Executive Nick Reade said business confidence still remained below the pre-GFC and post-GFC levels, but described the most recent rise as encouraging and one that he hoped would be the start of a sustained rebound.

“The rebound is likely to have been influenced by a number of factors, including record low mortgage rates, continuing low and stable official interest rates, the dissipation of much of the initial negative publicity about the federal Budget, and the strong Australian dollar making imports
and international travel affordable,” Reade said.

“With tax returns also coming in and helping with household cash flow, plus the recent abolition of the carbon tax feeding into lower electricity prices and lower cost of consumer goods, it’s appropriate to see a commensurate rise in consumer confidence.

“However, it should be borne in mind that the consumer confidence level remains low by historical standards, and consumer confidence is still variable, with metropolitan, white collar, young and male consumers having higher confidence than middle age to older, rural, female and blue collar consumers.”

The survey shows that most of the shifts in business confidence are small, but there are some significant increases, including:

• SME owners’ perceptions of their own overall business situation (24 per cent net increase in confidence since June 2014).
• SME owners’ confidence that their own business performance will pick up within the next 12 months (9 per cent net increase in confidence).
• A perception that business activity in the state is generally picking up (9 per cent net increase in confidence).

Reade said this suggested that business sentiment about business activity is more buoyant than consumer sentiment about business activity.

This was likely to mean there would be a business-led recovery, ahead of a pick-up in consumer sentiment.

He said the low interest rate climate had helped, but risk-taking was low.

“Consumers want businesses to invest more, while businesses are waiting for consumers to spend more, and it’s likely that businesses will break out first, because they are quite confident about their own prospects,” he said.

“Once business knows that the global economic environment is more stable and picking up in a sustained fashion, they will begin to invest more to develop and grow their businesses, including training and hiring staff.

“And once consumers know that their jobs are secure, with additional employment available to boost incomes if needed, and their own debt position is sound, they will increase their spending.’’

Nationally, the Reserve Bank is confident business investment will increase in the coming months, but is still not offering any hints on the timing of its next interest rate move.

The RBA has reiterated its stance that it won’t be changing the cash rate any time soon, and it is widely expected a rise will not come until the second half of 2015.

However, the minutes of the Reserve Bank’s September board meeting show it is getting slightly more confident about the economic outlook.

“Measures of business conditions had improved and there was evidence suggesting that growth in non-mining business investment would pick up modestly over the coming quarters,” the RBA said in the minutes.

The RBA said retail sales and measures of consumer confidence improved modestly in the June quarter.

“Members noted that dwelling investment had expanded further in the June quarter and that leading indicators pointed to continued growth in the months ahead,” the bank said.

“A wide range of indicators showed that conditions in the established housing market continued to strengthen.”

The RBA said low interest rates continue to support some sectors of the economy and encouraged more risk-taking investment.

“Investors continued to look for higher returns in response to low rates on safe instruments and were accepting more risk in doing so,” the bank said.

The RBA noted that the number of business loans were increasing but that credit growth was particularly strong in housing, increasing 10 per cent over the past 12 months.

“House prices were continuing to increase in the larger cities and members considered that the risks associated with this trend warranted ongoing close observation,” the RBA said.