We have certainly had a rollercoaster ride in 2020 so far in all manner of things. Social non-distancing in public used to be fine, now it's not. ASX shares used to be at record highs, now they're not.
And consumer confidence was also up. Then it wasn't.
But if a new report from Roy Morgan is anything to go by, Australian consumers might have a new spring in their step, if only a small one.
According to the report, consumer confidence of Australians has increased for the fourth week in a row (which was last week). The report asks a selected focus group of individuals how they feel about the current economic and financial environment and then quantifies their answers.
Currently, the score is sitting at 85, which is 1% higher than the previous week, and higher again than the four-week average of 79.8 – but still significantly below the long-term average of around 112.
Why does consumer confidence matter?
It matters a great deal because it's a figure that is deeply entwined with the health of the broader economy. If consumer confidence is high, people usually are more confident with spending more money in the economy, which is obviously good for economic growth and thus the S&P/ASX 200 Index (ASX: XJO). They might buy more goods and services, spend more on those goods and services then they might have otherwise, and might even borrow more money.
Conversely, if consumer confidence is down, people are less likely to buy luxury goods and services in lieu of essentials, will try to save money when they can, and might focus more on paying down debt than borrowing more. All of these things are bad news for the economy and growth in general (even if they are sensible financial practises).
Will consumer confidence boost ASX shares?
Whilst the signs from the Roy Morgan report are encouraging, I wouldn't quite say it's at a level that can boost ASX shares in the current environment. We would have to wait to see if this sentiment flows into ASX company earnings in a big way over the next few months, which is unlikely given the ongoing impacts of the coronavirus.
However, the trend is encouraging all the same, and I'm personally glad that Aussies are feeling better about the direction of Australia and the economy than they were a month ago. If this trend continues into the coming months, we might see some real benefits in the share market.
