Confidence in the economy rose across the board in September
Economic commentary by Jakub Seidler, Chief Economist of the CBA
Economic confidence had risen in September, both among households and businesses, with growth across all monitored segments of the economy (see Chart 1). Overall confidence thus rose again after two months of decline and is now slightly below its mid-year level. Services were the most important contributor to confidence growth, driven mainly by the financial sector. For households, the decline in confidence observed in the previous four months has stopped, but the September increase was only moderate and household confidence thus remains below the average for this year. Today's figures are thus more optimistic than in previous months; confidence was higher year-on-year in September in all monitored segments of the economy, and firms' expectations for the coming months are particularly favourable; however, the turnaround in consumer confidence was only cosmetic and is thus more of a stagnation, which does not indicate the longer-awaited significant turnaround in household consumption.
Households:
Household confidence, after improving rapidly at the start of the year, began to decline from May, bringing an end to four months of decline in the September figure. However, the increase in September was only cosmetic and was thus mostly a stagnation of confidence at levels that are among the lowest this year. Consumers' less favourable outlook for the economy and their own financial situation remained unchanged, with only a slight decrease in the proportion of households believing that the current period is not conducive to major purchases. Although household confidence is currently higher than last year, it is still below its long-term average and at the level of the second half of 2013, when the domestic economy was gradually emerging from recession (Chart 2).
Businesses:
In the case of businesses, confidence rose across the board in September, reaching roughly its mid-year level. For the whole of this year, it is at last year's level. The main driver of September's confidence growth was services, where expected demand over the next three months increased noticeably. However, this is probably partly a correction from August, when expectations fell significantly. Overall, the expectations component is more favourable, as is the assessment of demand in recent months, but this is largely due to the positive impact of financial services.
In industry, confidence also increased in September, but again due to the traditionally volatile sub-indicator of "expected production developments over the next three months", which has been dragging industrial confidence up or down in recent months. On the positive side, this indicator was not driven solely by the automotive segment, but it has strongly influenced the demand assessment over the past three months. Overall, however, expectations for industrial demand in September and August are more optimistic.
In the retail sector, too, higher confidence was driven mainly by more favourable expectations in the coming months. This is also true for the construction sector, where, although the assessment of past construction activity has deteriorated, expectations themselves are more favourable.
Thus, while September's confidence indicators were a positive surprise and brought slightly more optimism than in previous months, the more favourable figures were largely driven by expectations that have not been met many times in the past, especially in the case of expected industrial production.
