Consumer sentiment lifts for third week

Consumer confidence has ticked up for the third week in a row but cost of living pressures mean sentiment is still below historical averages.

The 1.8 per cent uplift in overall confidence as sampled by ANZ and Roy Morgan was led by a spike in the measurement of financial health, with "current financial conditions" lifting nine per cent and partially recovering the 12.3 per cent loss across eight weeks.

The "future financial conditions" sub-index lifted by 2.8 per cent. 

The "time to buy a major household item" metric fell two per cent, which followed a 9.2 per cent gain the week before. 

ANZ head of economics David Plank said confidence was at its highest level since October but was still at exceptionally weak levels based on long-run averages.

Mr Plank said low consumer confidence was yet to translate into a slowdown in spending, although the surprising contraction in October retail sales reported on Monday could signal consumers were starting to tighten their belts.

The recent Black Friday sales may explain this softening in retail trade, with consumers possibly holding fire on purchases in October to take advantage of discounts in November. 

The disconnect between consumer confidence and spending habits remains hard to decipher, with many expecting the fall in real wages to translate into a spending slowdown. 

But Mr Plank said wages only tend to account for around 40 per cent of total household incomes.

The Australian Bureau of Statistics' wage price index does not capture work bonuses, government support payments, rents from investment properties and other sources of income, he added.

As well as non-wage sources of income, massive household savings accumulated throughout the pandemic are also likely supporting household spending.

But falling house prices are likely to weigh on consumer spending due to the "wealth effect", with declining asset values linked to lower consumption. 

The latest ANZ predictions see house prices falling by 18 per cent from their peak by the end of 2023 before recovering by five per cent in 2024.

Reduced borrowing capacity is largely responsible for the decline as opposed to forced sales, ANZ's Felicity Emmett and Adelaide Timbrell said, with rising interest rates reducing the amount buyers can borrow. 

"A sharp lift in forced sales is unlikely in our view, given very large savings buffers," Ms Emmett and Ms Timbrell said. 

An expected boost to migration and the tight rental market is expected to cushion the housing price downfall.

Meanwhile, savings are the preferred means for funding the festive season, according to Finder data.

More than half of the 1054 people surveyed will reach into their savings to fund Christmas.

But 13 per cent of Australians will reach for a credit card to pay for gifts and other holiday spending, with another nine per cent planning to leverage buy now, pay later credit.

Another 20 per cent don't expect to spend anything extra during the period.

Despite many Australians expecting to fund their holiday plans with debt, the average Australian credit score is still in the healthy range.

Credit scores rank a person's creditworthiness and risk level when it comes to borrowing, with a higher score indicative of higher creditworthiness.

Equifax's credit scorecard shows the average Australian sitting at 846 out of a possible 1200, which is considered within the "very good" range.