Australian consumer confidence looks to be back on the rise, which could spell good news for ASX shares.
After nearly four years of pandemonium, things might be looking up. Starting with the psychotic highs (both in assets and the economy) of the 'pandemic era', the depressing lows of 2022, when the inflation-interest rates axis pirated the ship, and finishing with the volatility around the US Presidential Election this month, the Aussie consumer looks to be flexing its economic muscle once more.
Here, we'll examine two major surveys completed by Australian banks, which show that Australian savers are beginning to feel more optimistic about the future.
What does this mean for ASX shares? Let's see what the experts think.
Consumer confidence, strong ASX shares
ASX shares represent a cross-section of corporate Australia within the economy. When business is good, corporate earnings are rising, and interest rates are low, the market will tend to drift higher.
Whilst these are all great economic indicators, what they don't necessarily capture is the mindset of the consumer.
And consumer confidence is everything in business. Those in marketing will know that consumers base decisions on their confidence in making a purchase, which is influenced by any number of factors, ranging from the state of the economy, geopolitics, and the weather.
The psychology of spending and saving also has a big weighting, which is directly influenced by all economic factors.
For instance, if you're stranded in the middle of a storm, cold, hungry, shivering around the campfire, pleading with a higher power to "please, please bring me some KFC", it's unlikely you'll be out spending money in droves.
A bit different if it's warm, sunny, and you're in Bondi.
There are various ways to measure consumer confidence despite it being a largely intangible feature.
The Westpac-Melbourne Institute Consumer Sentiment Index is one such measure.
It jumped by 5.3% in November to reach 94.6, up from 89.8 in October, as more Australians feel optimistic about their finances and the economy.
This is now up 14% from mid-year lows, bringing the index within 5.4 points of the neutral 100 level, signalling growing positivity among consumers.
When consumer confidence increases, Australians are typically more willing to spend, which can directly boost the performance of ASX shares in retail, banking, and consumer staples, to name a few.
Consumers are seeing some further easing in the pressure on family finances, are no longer concerned about the risk of further interest rate rises and are becoming more confident about the economic outlook.
However, some big shifts over the course of the survey week suggest the lift in confidence is shakier than it looks.
And consumers are looking ahead of the current data as well. According to the latest findings, the economic outlook component of the index grew nearly 9%, showing how optimistic Aussies are about the future.
The forward view on family finances also improved. The 'family finances, next 12 months' sub-index rose 4.4% to 104.1. The sub-group detail showed particularly strong gains amongst Queenslanders, middle-income earners and amongst those aged 55-64.
NAB Survey backs up findings
Complementing the consumer sentiment shown in the Consumer Sentiment Index is the National Australia Bank Monthly Business Survey.
For October, data showed business confidence climbed to its highest level since early last year. It is now "back around average".
The improvement in confidence was relatively broad-based in the month. Business conditions tracked sideways at an around-average level in the month.
In trend terms, outside of mining, conditions are strongest in the services sectors, while the goods sectors are weaker (and negative in manufacturing and retail)
The bank noted business conditions were stagnant in October, and track around average. These results say that business activity has "picked back up", according to the survey.
Meanwhile, labour costs continued to temper, growing just 1.4% versus 1.9% in September.
Net-net, it appears that both business and consumers are rebounding in confidence. This could be positive for ASX shares.
Foolish takeout
Consumer and business confidence is moving in the right direction, which could benefit ASX shares.
If things continue improving, it's not unreasonable to see further upsides in the market from here. In saying that, the major risks still remain for any investment.
In the last 12 months, the S&P/ASX 200 Index (ASX: XJO) is up more than 18%.
