A quick look at the very gloomy New Zealand Household Confidence Index.
The News From New Zealand is getting worse and worse (such that next years election result will now be really interesting). The latest is from the Westpac Mcdermott Miller Consumer Confidence survey results released this week.
Confidence among New Zealand households has plummeted, dropping to its lowest levels since we began surveying consumers back in 1988. The Westpac McDermott Miller Consumer Confidence Index fell 13 points in the June quarter to a level of 78.7. Confidence has only come close to these sorts of lows twice before – first during the recession in the early-1990s, and then again during the Global Financial Crisis in 2008/09.
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My first chat of 2022 with Steve Mickenbecker from Canstar. We discuss the latest credit stats, the property market, interest rates and how to save some money. And Steve’s New Year resolution is a doozy…
Steve Mickenbecker is in Canstar’s Group Executive Team, bringing more than 30 years of experience in the Australian financial services industry. As a financial commentator for Canstar, Steve enjoys sharing his expertise across topics such as home loans, superannuation, insurance, mortgages, banking, credit cards, investment, budgeting, money management and more.
We have released the latest update to our Financial Confidence index, with data to 20th October 2020, later than usual, because we wanted to see if there was a post-budget bounce (as trumpeted by one index provider last week!).
We discussed the findings in our most recent live show:
There was a slight recovery, but nothing which takes our index out of the “gloom” zone. The latest reading is 78.07 still well below the neutral setting.
By our affluence segmentation, those mortgage free, and holding market investments improved as markets improved, while those with mortgages and those renting saw little change.
Across the age groups, younger households were least confident, reflecting fragmented jobs and incomes, and high leverage. Older households, especially those mortgage free were more positive, but older groups, reliant on bank savings also remain in gloom territory.
Across the states, Victoria showed a further slide (this may change if the lock-down is relaxed as anticipated), whereas WA continues to move higher, as the local economy recovers.
Across the property segments, property investors continue to languish, thanks to lower rental returns, higher vacancy rates and limited capital growth. Owner occupied households benefited from lower rates, and refinance, while those renting benefited from higher availability and lower rents (though some are confronting risks of being forced to leave due to investors wanting to sell, or to give notice).
Across the components of the index, job security remains a significant issue with more than 60% of households less secure than a year ago. Many are working less hours, while structural unemployment continues to rise. Many SMEs are also cutting.
Incomes remain under pressure, thanks to less hours worked, and lower pay rates. Reductions to JobKeeper and JobSeeker are also hitting some now.
Costs pressures are still clearly in play, with most households seeing costs across multiple categories continuing to rise. Everyday costs at the supermarket appear to be rising faster than the official cpi.
Those households with debt (not all are borrowing) are more concerned, especially those who were on principal and interest repayment holidays which are now ending. We continue to see expansion of credit (and Buy-Now-Pay-Later facilities) to those already in significant debt.
Savings are under pressure, especially with the continued crushing of deposit rates (thanks RBA…!). Those with savings in the banks have see rates drive towards zero in recent times. As a result more households are having to dip into capital, or moving to higher-risk investments. This largely silent group is drowned out by the clamour from the mortgaged sector and property bulls.
Finally, net worth has improved for those with market investments, for now, though 65% of households are still sitting on lower net worth than a year ago.
Given the current and expected monetary policy settings, we expect to see continued weakness in the index, until such time as employment and income growth accelerates. This is some way away yet.
Join us tonight for our live stream event, where we will be examining the latest results from our surveys, and discussing the broader economic backcloth to today’s RBA minutes. You can ask a question live via the YouTube chat, and we will also have our post data on line.
We have released the latest edition of confidence measures based on our surveys. You can watch our live stream replay where we discuss the results in detail.
The overall index recovered a little in August, but remains well below the 100 neutral setting at 76.56.
Within the cohorts, more affluent and mortgage free households are best placed, thanks to continued strength in stock markets. Those with mortgages and those renting, not so much. The massive levels of Government support, plus repayment holidays also helped, together with significant superannuation withdrawals.
The state variations are striking, with a further fall in Melbourne in response to the latest lock-downs, while WA is looking stronger.
Across the age groups, younger and older households are more exposed, while late middle aged households, who have more financial resources, and less mortgage debt, are more positive.
Across the property segments, owner occupied property holders are more positive relatively speaking, thanks to lower mortgage rates – this despite higher mortgage stress. However, property investors continue to wrestle with poor returns, limited capital growth, and pressure to commence repayments on mortgage balances. Many are still considering disposing of property in the months ahead. Renters are caught with more limited income, despite rents slipping in some areas. There is also concern in this cohort about the status of deferred rentals down the track.
Within the moving parts of the index, job security remains a significant issue, though there was a slight easing in some areas, while in Melbourne things have degraded significantly. Many self-employed households are under severe pressure, with up to one in three concerned about the future of their business.
Income pressures remain to the fore, despite JobKeeper and JobSeeker. Some households have received higher incomes, though these will be reducing in September. Others have received no support despite income compression. The majority suggest real incomes have declined in the past year.
Costs of living continue to run above the official CPI figures. Food staples appears to be rising quite fast, despite lower spending by some households on transport and petrol. School fees and health care costs also figure.
Households are under considerable debt pressure despite the current repayment holidays. Given income pressures, meeting future debt commitments registered as a significant risk. This is consistent with high levels of mortgage and rental stress.
On the other hand, those receiving additional support, pulling money from superannuation, or repayment holidays are saving hard, as a hedge against future uncertainty. That said, many Australians reliant on income from bank savings continue to see their ability to service debt crushed by close to zero returns on deposits. Buy Now Pay Later facilities are in vogue to spread the costs of purchases, and as a way to manage cash flow. About 20% of users end up paying late costs, making this “free” credit expensive.
Finally, net worth remained relatively static as the elements in the index shifted. There is considerable confusion in the minds of many households who hold property, given the mixed data available about the property market. Many still believe the Government will stop home prices falling. Nevertheless, households remain cautious ahead of the impending cuts in support, and this does not bode well for greater consumption ahead. The major pain point is small businesses, may of whom have not been able to benefit from JobKeeper. This should be a focus for the Government in the upcoming budget.
The latest edition of our Financial Confidence Index, just released, reveals further weakness as COVID shut downs and constraints bite in VIC and NSW.
We discussed this on our recent live stream event.
We had been tracking some positive movements after the March fall, but in July we dropped back to 74.19, well below the 100 neutral setting. This is based on data from our rolling 52,000 household surveys, and examines their expectations on jobs, income, costs, savings, loans and net worth. The data is collected at a post code level.
In the past month households without mortgages but holding stocks have done better than those with a mortgage or those renting without market exposure. This highlights an important division between some households and others in terms of their finances.
Across the states, VIC and NSW are pulling the FCI down, while smaller (now more isolated) states are doing a little better. The lock down in VIC is having a significant negative impact.
All property segments eased back, although property investors continue to be most negative, fretting about falling capital values and lower rental returns. JobKeeper and JobSeeker are wired into many households budgets now and as support eases, more are concerned about what is ahead.
Age band analysis reveals that those younger and older remain more concerned, while those in the middle bands, with lower mortgage commitments and more market exposure are more positive, though easing down.
Looking at the elements of the survey, job prospects continue to worry though there is a slight fall from nearly 70% of households who see employment as less secure. This is being driven by what I call structural unemployment, and middle management jobs in large corporations across the country fact the axe. I discussed this on ABC RN yesterday
Incomes remain under severe pressure, despite JobKeeper and JobSeeker. As these are scaled back, pressures are likely to intensify.
Costs of living continue to accelerate, with households observing the rising costs of basic essentials at the supermarkets. While traveling less is common thanks to restrictions, net-net most are feeling the pinch.
Debts are a worry for more households, especially mortgage debt. Where people are in receipt of Government support, and even superannuation draw downs, around half are looking to pay debt down. Lower interest rates on mortgages are helping some but we see evidence of higher LVR loans and households with income pressures finding it more difficult to refinance to lower cost alternatives.
The collapse of interest rates on bank deposits continues to bite, with more switching from term deposits. Some are choosing to place funds into the financial markets, or buying gold etc. instead. But this does not necessarily assist with income flow, especially as dividends are also under pressure ahead.
Finally, net worth continues to be supported by financial market rises, while property falls have been slight so far. That said, the proportion saying their net worth is lower remains significant.
If Government support is unwound before the economy picks up, our view is household financial confidence will continue to suffer; not good for investment, spending or overall economic growth.
The latest data from our household surveys to the end of February 2020 shows that the impact of Covid-19 are hitting home. The index dropped again, into uncharted territory, to an all time low of 80.2. I even had to change the scale of the chart to accommodate the fall!
We ask households to compare their levels of confidence today compared with a year back across a number of dimensions, from job security, income, costs of living, debt, savings and overall net wealth (assets less debts). This gives us a comparative series from the 52,000 households in the rolling sample.
Households are reacting to the uncertainty about the future trajectory of the economy, and recent survey results (we run a rolling series to the 5th March), have captured recent stock market falls. The falls are broad based, though households with a property remain relatively more positive, believing that property remains largely immune – we will see.
Within the property segmentation, property investors are on the mat now, as rentals continue to grind down, and property values especially among units have not recovered as much as the generic indices may suggest. Households renting are finding more choice, and lower rents in a number of centres (Hobart excepted). Supply is quite strong.
Most states moved lower, with NSW and VIC taking quite a hit this past month. NSW at 84.9 is the lowest scored state now, thanks to the higher debt leverage there where large mortgages predominate. WA, QLD and SA are bunched higher at around 90.
Across the age bands, we see falls across the board. The financial pressures on younger households of 20-30 and 30-40 are piling up as they continue to feel the issues most severely, older households are buttressed a little more by share portfolios (which are falling) and savings (where rates are falling). But all ages bands fell this month.
Within the index we can look at the elements which drive the scores. Job security slid 1.66% compared with last month with just 4.3% saying they feel more secure than a year ago. 38% feel less secure, an increase of 1.1% from last month, and 47% about the same. The full potential impact on jobs has yet to be absorbed by the community, but around 3 million are working in gig type “flexible” roles. And others will be “encouraged” to take leave to try to stem cash flow issues among businesses.
Households are taking a beating on savings at the bank, with rate cuts eroding returns to the point many households are not getting enough income to cover the basics. And the stock market is off (and falling as I write), with the supply side shock of the virus now translating to a potential liquidity crisis. Safe havens are hard to find for the fortunate few who have savings. Many of course have none and live from pay credit to pay credit.
The cost of debt is falling, so many are seeking to refinance (again) to grab the lower rates available to some. However, only 4.2% are more comfortable with their level of debt compared with a year back, and of course if income from employment falls, paying the mortgage becomes a nightmare. 42.5% are less comfortable than a year ago. Those who recently obtained new mortgage finance appear to be in for the biggest shock thanks to looser underwriting standards of late.
Pressures on incomes remain centre stage with just 1.7% of households saying their real incomes have risen in the past year. More than half of households have seen their incomes fall in real terms over this period, and 40% see no change. Incomes will evaporate for many should the supply side shocks continue.
Costs of living on the other hand continue to bite, with more than 95% of households reporting rising costs over the past year. 5% reported no change, almost no households reported they had fallen. Categories of costs which are impacting including the usual suspects, from energy, fuel, child care and health case costs, plus council rates. But the most insidious are those relating to everyday expense at the supermarket, where drought related hikes abound. The falling exchange rate is also hitting some imports and making them more expensive. Around 25% of households have less than 1 months cash available to meet their commitments if they income seized up.
Yet, overall, the net worth of households improved slightly, with property values higher in a number of locations, though recent stock market falls are dragging wealth down for some.
The big strategic question now is whether the Government understands the true significance of what is happening. Whilst they are talking up a $10 billion package, it appears to be shaping towards investment allowances and other tactical measures. In fact, the level of confidence we are recording in our surveys suggests that households will not be able spend (consumption being a significant share of the economy) and many small businesses will struggle to employ, yet alone survive. The quantum they are discussing is too little too late. I expect confidence to erode even more as things play out and the true horror the economic predicament we are in hits home. And then the following financial crisis also strikes.
The latest results from our household surveys revealed that household financial confidence recovered just a little in recent weeks, but is still in ultra-low territory and well below the neutral 100 measure, at 81.4.
So far, the impact of virus concerns have not translated into households finances, whereas the bushfires, floods and other local events are having a more direct impact.
Across the property segments, owner occupied households are the most positive, thanks to rising prices in some locations and lower interest rates on some mortgages. Property investors and those renting remain more bearish, as rental costs continue in the doldrums.
Across the states the recent trends continue, with both NSW and VIC households under greater financial pressure compared with WA, QLD and SA. Much of this is debt related as the average mortgage size grows ever larger in the two largest states.
We continue to see pressure among younger households building relative to those in the older cohorts. Much of the pressure comes from housing costs one way or another.
Those mortgage free and owning property are relatively better placed than those with a mortgage, or renting. This is because housing costs are such a large element in a budget whether servicing a mortgage or paying rent.
Looking in more detail at the moving parts, living costs continue to rise disproportionately, thanks to more expensive fresh food (drought related), child care and school fees rising fast, accelerating healthcare costs and continued high energy and fuel costs. 95% see their costs higher than a year ago. More are having difficulty with council rates and other regular commitments.
Income growth is muted at best, with 51% saying their income has been reduced in real terms over the past year, with both wages growth sluggish, and income from savings on deposits crashing as the cash rate is cut, and banks squeeze margin. Returns from share investments on the other hand are doing better. Those with spare income are preferring to pay debt down, rather than spend.
Job prospects are also sluggish, with just 6% feeling more secure than a year ago, while 38% are feeling less secure. We continue to see a pattern of multiple jobs, rising part-time jobs, less overtime and gig economy roles on the rise; all creating greater concerns about job security. Underemployment remains a critical issue for many.
Turning to loan finances, some have been able to refinance to lower rate mortgages (and others appear to be missing the opportunity to switch and save), while some households are unable to transfer to a lower rate thanks to underwriting constraints. Households are able to grab a larger loan now lending standards have been loosened. Lower rates mean that 42% remain about the same with regards to confidence, while 45% are less comfortable than a year ago. We also note a rise in the use of unsecured debt, and buy-now pay-later (which will be the subject of an upcoming article based on new data we have captured). De-leveraging continues among those who can afford it.
On the savings front, those with market investments continue to enjoy paper capital growth, while dividends remains relatively stable. But those with term deposits continue to see rate compression and there is a move from term accounts to call accounts as the margin between the two have fallen further. More than 3 million households rely on income from bank deposits, and the reduction in the returns from deposits is having a dramatic impact on many. That said, many households remain adamant that they do not want to take on more market risk, so reluctantly accept lower income – which in turn flows to lower spending. 43% feel less comfortable than a year ago. Many are dipping to savings, and using capital for living expenses, something which may not be sustainable.
Finally, putting all this together we look at net worth – assets minus loans and other liabilities. The upturn in home prices reported in the media have flowed through to more expectations of growing wealth. 28% now have higher net worth than a year ago. That said 47% have lower net worth, thanks to rising expenses, and little in the way of savings. 24% reported no change. We note some significant differences between the more affluent segments and suburbs where net worth is rising (and supported by rising market investments) compared with regional areas and the urban fringe where there is no evidence of any wealth effect – so far. This is continue to dampen spending.
So, to conclude, we appear to have reached something of a floor in household financal confidence, but the journey back to more balanced settings will only be achieved once real incomes start to rise. Meantime the property recovering and wealth illusion may help a bit, but there is little here to suggest a rise in consumer spending. Many households are trapped in a high housing cost situation (either mortgage debt or rent) and with continued pressure in costs of living, the pressures will remain for some time to come.
The question is, what if anything might break the trend? Well income growth if it came, would assist on the upside, but then if growth stalls further thanks to the second order impacts from the virus, the confidence floor might just disappear. Households are in a finely balanced predicament.
DFA is releasing the latest in our 52,000 household survey series examining household financial confidence. The score to mid January is an all-time low of 81.2, well below the neutral setting and the previous low back in 2015.
A series of events, including the bushfires and the perceived weakness in the Federal Government response, the volatility of the financial markets, and weak Christmas spending are all taking their toll. It is the biggest movement we have seen in the monthly series, so we expect a rebound next time, perhaps. But weak wages growth remains the underlying cause.
The survey did not reach those in the regional areas impacted by the bushfires directly, but is still statistically reliable elsewhere.
By way of background, these results are derived from our household surveys, averaged across Australia. We have 52,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean assets less outstanding debts.
Looking across the age bands, all household cohorts dropped, though younger households more so than older groups. Those aged 40-50 showed a significant fall. So this is a broad-based decline.
Across the states households in NSW and VIC dropped the most, and VIC was significantly impacted. These two states are net lower now than QLD, WA and SA, due to largest decline over the past year. Major urban centres here have been hit by smoke haze and poor environmental conditions which have really brought home the severity of the current bushfires. Plus jobs are an issue, and wages weak.
All property segments took a hit, but owner occupied households less so than property inactive (renting or living with friends or family) or property investors. Property investors continue to report weak rental returns, and higher vacancies, and little if any capital growth.
Looking at the moving parts within the index, those feeling more positive about job security fell 2.48% to 5.35, and those feeling about the same dropped by 2.35%, while those feeling less secure rose by 1%. This is caused by more underemployment (including bushfire related), more zero hours and gig economy jobs, and more households working in multiple part-time jobs. Retail, construction and tourism were specifically hit, as well as the agricultural sector. Those employed in the small business sector are specifically exposed.
As a result of the jobs issues, plus no growth, income is also under pressure. More than half of households reported lower income than a year ago, up 1.74%. Only 3% reported a real rise, down 0.98%, while 40% saw no change. These income pressures are significant and mounting. Those relying on income from bank deposits are seeing returns being trashed, but many households are not willing to switch to higher risk alternatives, preferring to trim their spending instead.
On the other hand, costs of living continue to outpace wages growth. A massive 95% of households reported higher costs than a year ago, up 1%. Costs are increasing across food staples (thanks partly to the drought and supply issues), school fees, childcare, healthcare, power and fuel. More households are considering cutting back on health insurance, and are seeking cheaper goods more generally. Those accessing food banks and other charitable assistance rose significantly.
Those with savings are continuing to dip into them to support their finances, though this is not necessarily sustainable. Those who received tax refunds, or some relief from lower mortgage rates are preferring to save the funds, or repay debt. They have no intention of increasing spending. Those with stocks and shares, or bonds – who tend to be more affluent – are fairing better, but even here, returns are under pressure from bank stocks. Concerns about the security of the banking system are on the rise.
The impact of lower interest rates have assisted at the margin, but two thirds of households receiving a cut preferred to maintain their original payments, thus paying off debt faster. However those in financial difficulty were able to extend their credit line, though multiple credit cards, personal loans, and structured payments like Afterpay. In addition, demand for short-term loans rose. As a result only 2% of households were more comfortable with their debts than a year ago, 46% less comfortable and 42% about the same.
Household net worth – assets minus debts – remain under pressure, with higher stock and property values for some offsetting pressures elsewhere. One quarter of households said their net worth was higher than a year ago (remembering that home prices dropped in the first half of 2019), while 46% said their net worth was lower now, and one quarter said there was no change.
Looking across our wealth segments, all three dropped, though those holding property, but no mortgage were relatively more positive (though below neutral) compared with those with mortgages or those renting.
This is a serious signal of more economic trouble ahead, despite the fact that now the Federal Government has announced $2 billion in stimulus, plus state money, charitable donations and Government benefits for those impacted by the bushfires. However, the structural issues surrounding flat or falling real incomes and rising costs signals more financial pressure ahead. And as a result, we expect retail to remain slow, despite lower mortgage rates. We suspect the anomaly of strongly rising property prices (where they are occurring) will abate ahead. In many areas, though there has been no, or only a very limited recovery.
As a result, growth will remain anemic for some time yet, and household confidence will remain in the doldrums, though we would expect to see a small bounce next month as the bad news around the bushfires is absorbed. We think more fiscal stimulus will be required to turn this round, but the key is real wages growth, and we cannot see a route to that for some time yet.
