News of consumer confidence around all time lows, and a sharp warnings downgrade by a medium sized whitegoods retailer will help interest rates, in the medium term, to go lower.

News of consumer confidence around all time lows, and a sharp warnings downgrade by a medium sized whitegoods retailer will help interest rates, in the medium term, to go lower.

Morgan said this morning that its June Roy Morgan Consumer Confidence Rating was 90.7, down 6.4 points from May and 31.6 points below the June 2007 result of 122.3.

According to Morgan, that makes it the lowest Roy Morgan Consumer Confidence Rating since December 1991!

“Driving this fall in Consumer Confidence is the increased number of Australians who say they and their family are financially worse than this time last year – 45% (up 10% from May and 20% from January). Only 22% (down 6% from May) of Australians believe that they and their family are financially better off than this time last year,” says Morgan.

“Now, 31% (down 1% from April and 8% since December) expect their family to be financially better off in a year, and 31% (up 4% from April and 15% since January) of Australians say that they and their family expect to be worse off in a year.”

“Fewer Australians expect ‘good times’ financially in the next 12 months — 22% (down 4% from May and 16% since January). 39% of Australians (steady since May, but up 14% since January) expect “bad times” financially in the next 12 months. But there was also a rise from April and January (up 18%) in the number of people who thought the next year would be a bad time to buy a major appliance or make a major purchase.” 

So it’s probably not surprising that this morning saw a sharp profit cut from whitegoods retailer, Clive Peeters. Associated commentary shows that the slowdown engineered by the four rate rises from last August, plus the drop in confidence and the extra increase in rates from the banks, is taking a heavy toll.

Clive Peeters says net profit for the year to June will be down at least 31%, after it had forecast a 10% rise after the interim result was announced in February. The downgrade follows one from small women’s fashionwear retailer, Noni b which said last month that earnings had been hit by a combination of weather and the sluggish conditions. Clive Peeters has revised net profit for the 2008 year to $10.2 million, 31% lower than previously forecast.

“Regrettably, trading conditions have deteriorated sharply in very recent months. Despite sales and profit being in line with expectations over the first two months of H2 2008, the market slowed slightly in March and then deteriorated sharply in April. This slowdown has continued and deepened into May,” the company explained this morning.

“The sales downturn has emerged despite the Company’s increased and aggressive advertising programme over April and May, confirming that consumer confidence is very weak, and that the retail conditions are extremely challenging.”

“With the recent spate of interest rate rises, the possibility of further interest rate rises to come, and record high fuel and food costs, Directors see little prospect of the retail conditions improving in the near term,” Clive Peeters director said.

These are the sorts of comments that will have the market analysts questioning the likes of JB Hi-Fi and Harvey Norman, which compete in some of the areas that Clive Peeters does, and a bit more, such as IT.

The likes of David Jones have already revealed a slowdown in sales from the first quarter onwards and there’s no reason to think that other retailers are escaping the impact of the tightening from the RBA and loss of consumer confidence.

Both reports are the sort of news that illustrate the illusory nature of this week’s March quarter national accounts, which some analysts took as gospel, even when they looked more deeply and found there was a slowdown and it was slowly gathering pace.

News that Holden is laying off 500 workers from its main Melbourne car plan won’t help confidence, especially in Victoria, which has been recovering its confidence thanks to rising property prices. That’s stopped.

Holden’s cuts are more due to slowing sales for its cars, especially the fuel chewing Commodore. It was a good seller in May, but sales are slowing. Holden’s market share was 12% in May, well behind Toyota. Holden’s 2007 share was 14%. The US parent this week revealed it was changing its production mix, shutting four plans and adapting quickly to high fuel costs. Holden’s cuts won’t be the last; Ford will have to be watched.

Qantas is also going to soon start cutting jobs after dropping domestic and international routes and announcing plans to take six planes out of service, at this stage.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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