The Economy: Confidence, Home Lending Weak

Consumer sentiment fell to its lowest level in 8 months in March, in contrast to the small, but noticeable rise in business confidence in the NAB survey on Tuesday.

The Westpac/Melbourne Institute Consumer Sentiment Index fell by 1.6 to a reading of 94.5 index points in April from 96.1 points in March.

The slide in confidence was supported by another weak month of home loan approvals in February.

Later today we get another important economic indicator, the jobs and unemployment data for March, which may show a small rise in new jobs, but also a larger than expected fall.

The jobs figures will be compared with the ANZ job ads survey results for March which showed a rise in the number of new job ads to a three year high (and up 12% in the first quarter of 2012).

But there was no sign of that level of confidence yesterday in the latest survey of consumer confidence.

Westpac chief economist Bill Evans said in a statement that he had not expected the negative sentiment which a lower reading suggested.

"This result comes as a mild surprise," he said.

"The index is now at its lowest level since August last year when consumers were very concerned about the global outlook and warnings from the Reserve Bank and most commentators that higher interest rates were imminent.

"With conditions in the global economy improving and commentators interpreting the Reserve Bank (of Australia) governor's latest statement as hinting strongly that rates are likely to be cut next month it seems surprising that households would have a negative reaction in April."

Mr Evans said people with mortgages appeared to have been spooked by the RBA's decision not to cut official rates at its April meeting, although commentary had suggested a cut next month was possible.

Borrowing confidence amongst mortgage holders fell 5.1%, while tenants reported an increase in confidence of 7.4%, and those who wholly owned their homes reported a fall of just 1.7%.

Two of the five components of the survey fell in April, with the sub index tracking how consumers view the state of their family finances down 14.4%, and the outlook for family finances over the next 12 months falling 4.1%.

Mr Evans said these readings were of particular concern.

The gloom in the confidence data was underlined by the release yesterday of Australian Bureau of Statistics data on hone loan approvals for February.

The ABS figures showed a 2.5% drop in the number of home loans approved in February to 46,322.

That was from a downwardly revised 47,490 in January.

Weak as the February figure was, it was still well above the 42,170 approvals recorded in February of last year and the 45,213 in February 2010.

The figures do support the weak building approvals data for February as well.

The outcome was a bit better than market forecasts for a 3.4% fall in the month.

There was another big fall in lending for the purchase of new homes: it fell more than 10% in February to be down by more than 16% in the first two months of the year, underlining just how tough it is for those builders with new homes completed, but unsold.

But slightly offsetting that, there was another small rise in home loans to finance the construction of new homes.

But that was just about the only bright spot of note in the gloomy figures.

The ABS said that total housing finance by value fell 1.3% in February, seasonally adjusted, to $20.295 billion.

The ABS said the seasonally adjusted value of owner-occupied housing commitments fell 4% in February 2012 and excluding refinancing, they were down 4.2%.

The seasonally adjusted estimates fell in NSW (down 1,377, 9.4%), Queensland (down 94, 1.1%), Tasmania (down 47, 5.3%), the Australian Capital Territory (down 15, 1.7%) and the Northern Territory (down 1, 0.4%).

Rises were recorded in South Australia (up 61, 2. %), Western Australia (up 50, 0.8%) and Victoria (up 33, 0.3%).

The number of finance commitments for the construction of dwellings for owner occupation, seasonally adjusted, rose 3.1% in February 2012 following a rise of 0.3% in January 2012.

The number of finance commitments for the purchase of new dwellings for owner occupation, seasonally adjusted, slumped 10.4% in February 2012 following a fall of 6.3% in January 2012.

The number of finance commitments for the purchase of established dwellings for owner occupation, seasonally adjusted, fell 2.8% in February 2012 following a fall of 1% in January 2012.

The number of refinancing commitments for owner-occupied housing, seasonally adjusted, rose 0.7% in February 2012 following a rise of 1.7% in January 2012.

The number of commitments for owner-occupied dwellings financed by banks, seasonally adjusted, series, fell 2.6% in February 2012.

The number of commitments for owner-occupied dwellings financed by non-banks, seasonally adjusted series, rose 3.2% in February 2012, after a fall of 23.7% in January 2012.

The value of investment housing commitments, seasonally adjusted, rose 4.4% in February 2012.