- Both business and consumer confidence is heading higher;
- Consumers appear more confident than firms, particularly about the jobs outlook;
- Cash flow concerns will keep a lid on business Capex, exporters worry about the global economy;
- Households are looking to invest in bank deposits and equities, but not in housing.
May saw a notable jump in business confidence. But it also meant that confidence had improved from a truly shocking level to a merely terrible one. Forward order books remained dire (albeit not as bad as April). Both business conditions (and orders) should improve in June.
Not all industries are feeling the economic pain equally. Iron ore miners are doing Ok. As are food, electronic and a number of recreation stores. There is lots of money being spent on gambling! And manufacturing has done better than the wider economy. Parts of manufacturing are being hurt by the slowdown in the construction industry. Social distancing policies have hit the service sector the hardest.
The bounce back in consumer confidence has been more pronounced. Confidence is mixed between age groups. Consumers report that their family budget is not in great shape. Households’ fear about unemployment is not unusually high. Their biggest issue is the lack of income growth. Despite the current gloom households are more optimistic than usual about the medium-term.
Low confidence is impacting the way consumers save. Households want easy access to a chunk of their saving. So putting money into a bank has been popular. The desire to invest in housing is at historically low levels despite the rock-bottom level of interest rates. The discussion about falling house prices means there are some (potential) buyers.
To read my full update, click here.
We live in interesting times!
Peter Munckton - Chief Economist