Money mailbag question: What's the deal with consumer confidence?

Photo: Juli Kosolapova

Consumer confidence is a term that's thrown around a lot these days, but what is it supposed to mean?

Surely it's impossible to tell if every single one of us is feeling confident about money or the general cost of living? Not according to the gurus of economic numbers.

Consumer confidence as a measurement is what economists like to call an “indicator”, which isn’t an exact science but gives us a sense of confidence levels. With this context, consumer based numbers can add up. 

Now there are a few parts to the equation and it's largely to do with our spending, or our intention to spend versus saving money. The premise is that if we're confident of our immediate futures, and we feel the economy and our wallets are brimming, then we will spend more.

Conversely, when confidence is low, consumers tend to feed their piggy banks and save, as the theory goes. The tricky aspect to this is that our emotional state seems to teeter, given that they take the measurement every month. A longer term measurement might be more helpful, or at least an understanding of our behaviour over many months. More on that shortly.

What do the consumer confidence numbers tell us?

Consumer confidence typically increases when the economy expands, and decreases when the economy contracts. So if we look at a recent ANZ Roy Morgan Consumer Confidence index, it was up 1.4pts to 85.6 last week, 16pts below the same week a year ago (101.6). Further still, our confidence is now 5.9pts below the 2022 weekly average of 91.5.

So we're a bit down, the experts say.

Don't bank on this though - things get a little confusing when you look at other metrics. For example, 24% of Australians say their families are better off financially than this time last year. However, 42% say their families are worse off financially. Meanwhile, fewer than a third of Australians expect their family to be better off this time next year compared to 30%, who expect to be worse off. That’s a jumble of numbers to be sure. In addition, only 9% of Australians expect good times for the Australian economy over the next twelve months compared to 34% that expect bad times.

Of course, this is just one version of consumer confidence and there are other similar surveys done, such as NAB’s consumer insights report. In August, it concluded that Australians are coping quite well in this tougher economic climate and “making ends meet”, but 1 in 5 say they are really struggling. In fact, half of low income earners faced some form of financial hardship in recent months, the report found. 

The most common forms of hardship include not having enough for an emergency, food or basic necessities and being unable to pay a bill (particularly utility bills). Borrowings from family and friends and credit cards were the most common debt options for those in hardship, the survey found. Furthermore, some people have missed repayments on buy now pay later services (7%), credit cards (6%) and insurances (5%). Not huge numbers but still a factor. It’s worth noting that people in regional areas have struggled more with missing such payments. 

Confidence down after lockdown shopping highs

As I mentioned before, it’s hard to get a big picture view of the national mood, even with all these numbers floating around. But one helpful way to look at the economy is to split up the categories a bit and the Westpac consumer sentiment bulletin does this well. It shows that overall confidence is down 23% since November of last year, which makes sense and gives that longer term view. 

In this report, mortgage borrower confidence is down 9% as of August, house price expectations are down 7.5%, while confidence in the job market is up 6%, says Westpac. These figures can help paint a picture because we can put them up against last year’s data, such as the obvious expectations for property price growth during 2021’s lockdowns. How things have changed!

Lastly, there are obvious overriding factors that dampen confidence and we don’t even really need a number for those. Westpac tells us that both inflation and higher interest rates weigh on our confidence, as we might expect to read. 

How to improve financial confidence at home

Perhaps a bit more good news in the media might give us a little more pep in our step, but short of that, building confidence in your own personal money situation can start with some basic research. Knowing how to better budget and handle debts are certainly very good places to start, and we have plenty of tips on the Mozo site that can help you with these things. 

Here are a few of our most handy guides to start with:

How to create a budget and build your savings in 2022

10 ways to handle the rising cost of living

The seven best budgeting and savings apps every Aussie needs