Consumer sentiment increased slightly in July buoyed by a sharp recovery in long-term business conditions, but confidence remained relatively subdued in spite of signs of a pick-up in activity following action by the Chinese authorities to underpin growth.
The Westpac MNI China CSI increased 1.9% to 114.8 in July from a near one year low of 112.6 in June. Sentiment was further above the breakeven 100 level, meaning that optimists outnumbered pessimists, but confidence remained below the 118.9 average seen over the past 12 months.
Four of the five components that contribute to the Westpac MNI China CSI increased between June and July, although only Expectations for Business Conditions in Five Years posted a significant increase to 135.6 from 126.4, recovering the lost ground in June. Business Conditions in One Year, Expected Personal Finances and the Durable Buying Conditions components increased only marginally from record low levels in June.
The only component to decline further in July, after June’s sharp fall, was households’ perception of their Current Personal Finances which fell to 108.5 from 109.7 in June, the lowest since August 2013.
Optimism over the housing market took a slight knock in July but remained at a high level. The House Price Expectations component eased in July from a three year peak in June, although remained significantly above the average seen over the past twelve months. Further easing of house buying controls at the local level coupled with some action to improve mortgage lending are likely helping to underpin sentiment.
New data added to the survey this month on saving,though, pointed to some unease over the housing market. 16.4% of respondents said that real estate was the wisest place to keep their savings, down from 20.1% in the previous month.
Commenting on the data, Chief Economist of MNI Indicators Philip Uglow said, “Consumers appear more convinced that actions taken by the government will help to support the economy over the long-term, but remain less optimistic about the current state of business or their own personal finances. While our sister business survey shows a noticeable pick-up in confidence, the more subdued consumer sector cautions about getting too optimistic over the outlook for the rest of the year just yet.”
Westpac’s Senior international economist Huw McKay commented that, “A month ago the employment indicator was sitting at levels that have been associated with policy easing in previous cycles. A further decline from those already depressed levels in July implies that it would be unwise for the authorities to declare victory too early on the growth front - particularly as the official CPI target of 3.5% for 2014 seems unlikely to come under any threat, with inflation expectations still 1.5% below their long run average following a modest increase in July.”
“On the financial front, consumers are now broadly neutral on stock price direction over the next three months, after being quite negative in June.”