Consumer Confidence Ratings indicate Australian consumers feel more buoyant about the state of the economy than they have since prior to the Federal budget in May.
Glenn Stevens, Governor of the Reserve Bank, said the past two financial quarters suggested “a picture of moderate growth”. He said “growth is continuing. Most survey indications are that business conditions have improved a little, and that household sentiment has recovered a fair bit of the fall seen in April and May”.1
Jim Papas, an owner of the Eyeclarity group said an outcome to the federal budget is important to further stabilise the economy. “The budget has certainly affected consumers’ spending patterns and has created uncertainty. The longer the budget is at an impasse will affect certain consumer segments and the affect in the market is uneven.”
Ideology Consulting’s Mark Overton, who works closely with optical retail businesses, said many practices felt the pinch in the last quarter of 2014. “This was a national effect and was reported all around the country… Consumer Confidence Indices clearly showed a dramatic fall starting just before Christmas and ending just after the Federal Budget was released. Combined with the effect of Easter and the Queen’s Birthday weekend the effect was really noticeable. These kinds of index numbers have not been seen since the 2011 echo of the GFC. The drivers for this fall were largely political and economic, and these do not last forever. With the new financial year and perhaps a realisation that life after the budget does go on, the index has made a recovery.”
In his address to the CEDA (Committee for Economic Development of Australia) lunch in Adelaide on 3 September Mr. Stevens said, “the rebound in confidence augurs well for a continuation of the lift in retail sales reported for June, which followed three consecutive soft months.”
According to the Westpac Melbourne Institute Index of Consumer Sentiment,2 consumer sentiment increased by 3.8 per cent in August from 94.9 in July to 98.5 in August. Westpac’s Chief Economist,
Bill Evans commented, “this is a pleasing result. The index is now only 1.2 per cent below its level prior to the Federal Budget on May 13. Over the last three months the index has increased by a total of 5.9 per cent indicating that much of the damage to confidence in the aftermath of the Budget has been repaired.”
He cautioned that the “index has not reclaimed any of the ground lost between November 2013 and April 2014, when enthusiasm associated with a new government appeared to wane. The Index is still around 10.8 per cent below its post-election peak.
“There seems to be a number of politically-based factors that may be boosting confidence. Firstly, since the last survey it has been announced that the unpopular carbon tax has been repealed. Secondly, households have also probably been buoyed by resistance in the Senate to many of the unpopular Budget measures. It would seem that households are now assuming that some of these measures will eventually be moderated or abandoned,” added Mr. Evans.
TIME TO INVEST IN THE FUTURE
Mr. Stevens said “many businesses are in a position to play their part in the growth dynamic over time. “This is not some call for business leaders to play a role in driving growth out of a public-spirited desire to help the economy. That would be a fruitless call because doing that isn’t their job. Their responsibility is to run their companies in the interests of the companies’ owners.
My argument simply is that, at some point, it is going to be in the interests of the owners for investment to take place in new technologies, better processes, new lines of business and, in time, more capacity.
“As business responds to trends that foreshadow sustainable increases in demand and incomes, some of the response will come from smaller and newer players. Some of these will probably be among the most innovative enterprises.”
At Eyeclarity, Mr. Papas believes an innovative approach is the way forward for small business. “Business can be variable and when things quiet down it allows us to move more quickly on our plans. We do not have the same resources as others but we are innovative in our approach and work to consistently develop Eyeclarity to provide a real alternative for our consumers and to allow us to grow even in difficult trading environments.”
Similarly Mr. Overton said optical retailers must be prepared to work through periods of change. “Firstly there will be variations in consumer behaviour and sales as a result. Don’t panic. Manage your cash flows and trust that you have your product and service positioned correctly. Second, you cannot wait until there is a problem to fix it. All businesses need to be constantly working on improving their value proposition and on constantly changing to please and care for their patients. This is particularly true in optics where we have longer timesbetween purchases and new business takes time to acquire.”
References:
1. melbourneinstitute.com/downloads/media_release/2014/CSI/PressReleaseCSI20140813.pdf
2. www.rba.gov.au/speeches/2014/sp-gov-030914.html
