The finance and economics news cycle is often driven by the publication of new data.

New data gives us new insights about the direction the economy is heading. So journos (including me) write stories about these insights.

There was lots of new data released this week: consumer confidence, investment, and the monthly consumer price index (CPI).

Let’s take a look!

Consumer confidence jumped up 5.7% in August, reaching a score of 98.5, according to the Westpac - Melbourne Institute Consumer Sentiment Index. Let’s unpack what that means.

Consumer confidence is a way of measuring how people feel about the economy. Researchers at the University of Melbourne, funded by Westpac, survey around 1,200 households and ask them how they feel about:

If people feel good, the scores are higher, and vice versa. The researchers standardise the scores so that 100 is basically the long term average, showing normal levels of confidence.

It’s measuring how people feel. 

In this newsletter, we’ve talked about other data releases: GDP, inflation, unemployment, etc. These are measurable outcomes - numbers collected after things happen. We call this hard data. 

Consumer confidence comes from a survey. It’s measuring an opinion, expectation, or mood. We call this soft data. 

Consumer confidence is an early indicator of whether households are going to spend or save. Think about it: if you’re feeling good about your finances and the economy then you’re probably more likely to go out to dinner, or buy a new phone, versus if you’re not feeling good. 

This is important information for policymakers and businesses. Lots of spending can put pressure on prices, so the RBA keeps an eye on consumer confidence. And warning signals of consumer spending can help businesses prepare: if they see confidence increase, they might hire more people or increase production. 

Consumer confidence jumped up 5.7% to a score of 98.5. That’s the highest level in nearly 3.5 years. Remember, 100 means normal levels of confidence. This result means we are nearly back to the levels of confidence about the economy recorded in the immediate aftermath of the pandemic lockdowns. 

This jump follows the RBA’s decision to cut the cash rate this month. That decision probably made people more confident about their finances, knowing they will pay less interest each month. Households are feeling better about their finances, the economy, and whether it’s a good time for a major purchase.

A few things:

The Australian Bureau of Statistics (ABS) dropped two important figures last week: private investment increased 0.3% in the June quarter, and the monthly consumer price index (CPI) rose 2.8% over the year to July. 

Every month, the ABS releases data showing how much inflation increased on a monthly basis from the same time last year. This measure is a less complete reflection of economic performance than the quarterly data, which is a bit more reliable, but it’s still useful because it gives us frequent windows into how the economy is doing. 

Here’s what you need to know about the recent data:

An important note: one data point does not make a new trend. A jump up does not mean we’re heading back to high inflation, but it does mean it’s worth keeping an eye on. 

Business investment increased 0.2% between April and June this year. This is the first time we’ve talked about business investment in this newsletter. Let’s break it down. 

Business investment measures how much money companies are investing in buildings, machines, or anything else that helps them increase their capacity to produce stuff. For example, business investment would include:

The common thing about all these investments is that they should increase the company’s ability to produce more goods and services in the future. 

The indicator we are looking at here is from a survey. The ABS surveys around 10,000 companies across Australia and asks them how much money they spent on business investment in the last year, and how much they expect to spend over the next year. 

We care about business investment for lots of reasons, but primarily because it drives productivity growth. More and better machines mean that workers become more efficient at their jobs. That means we want businesses to invest. 

Business investment increased 0.2% in the June quarter. How do we know whether that’s good or bad? Let’s have a look at business investment growth from the past 10 years. 

Recently, business investment has been low and steady, coming down from some post-COVID highs. 

Looking back further, we can see that investment has been on a longer-term downward trend (excluding the little post-COVID bump). 

TL;DR: Business investment has been lower than we’d like since the 2000s. This is related to low productivity: the less we invest in new machines, the fewer opportunities we have to become more efficient. 

The reason it’s low is its own kettle of fish, which we can address later!

Remember the lipstick index from a couple of weeks ago? Australian cosmetic giant Mecca’s revenue has shown it could be in full effect, with the company paying its sole shareholder a $110 million dividend. 

According to the Australian Financial Review, the shareholder is a trust that re-invests in the company. 

Mecca’s revenues soared to $1.4 billion in the year to December in Australia. 

The move has now led to the company being investigated by the Australian Securities and Investments Commission. 

And to all my skincare enthusiasts, I highly recommend this podcast episode.

Let’s look young together forever. 

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