ANZ: Consumer confidence is at a six-month high after Joe Hockey's 2nd budget

Australian consumers have given last week’s federal budget a big thumbs up in a dramatic contrast to the plunge recorded last year.

The weekly ANZ-Roy Morgan consumer confidence index jumped 3.6% to 114.6 last week. The increase, now above its long-run trend, took the index to highs last seen in early November 2014.

ANZ chief economist Warren Hogan believes the increase, if sustained, would be consistent with stronger retail spending and economic growth over the second half of the year.

“The initial positive reaction of Australians to last week’s Budget is great news for the economic outlook. In contrast to last year’s Budget, consumer sentiment has risen in both the lead-up to and the immediate period after Budget night. The 3.6% weekly rise in measured confidence is almost twice the average weekly move of 2.0%, which indicates to us that the Budget impact has been strongly positive. This suggests to us that Australians believe the Government has got the mix of medium-term fiscal consolidation and short-term support for the economy about right. We tend to agree and will be watching just how far the Government’s fiscal policy can support sentiment over the months ahead.

Sentiment is now above its long-term trend and if the recent upward momentum is sustained would be consistent with stronger retail spending and economic growth over the second half of the year. However, the fragility of confidence over the last 18 months or so suggests that a continuing improvement cannot be taken for granted even in the presence of rising asset markets and low interest rates. While government policy and political instability may recede as a concern for households in the near-term, we expect that job security will remain front and centre for Australians in their assessments of not just their own financial situation, but also the outlook for the economy. As such, the unemployment rate will be critical to prospects for sentiment, spending and the economic outlook.”

While Hogan is cautious on the sustainability of the bounce – it’s definitely warranted given the skittish nature of sentiment seen in recent years – if maintained it’s a great sign for the domestic economy in the months ahead.

Recent rate cuts from the RBA have seen asset prices increase, boosting household wealth, while unemployment, still at elevated levels, appears to to be stabilising, having crept higher in recent years.

The ingredients to fuel greater household spending are now in place. Should the boost in confidence be replicated in greater levels of consumption the outlook for the labour market and non-mining business spending, hence the overall economy, appears far brighter than at any point seen in recent history.

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