Consumer confidence jumped again last week, back to pre-budget levels, but concerns remain about household finances.
The ANZ-Roy Morgan consumer confidence index rose by 1.5% to 112.2, on the back of more positive sentiment about the Australian economy.
That brings it back above the 4-week moving average of 111.1 in the wake of the federal budget, when the index fell to its lowest level since 2015. But the latest reading is still below the long-run average of 112.9:
Household’s views towards current and future economic conditions pushed the index higher last week, climbing by 3.5% and 4.6% respectively.
However, sentiment towards financial conditions remains negative. Views towards current financial conditions were down 0.1%, while future financial conditions fell by 1.7%.
The falls follow a further deterioration in current finances in the prior week, which took the reading to its lowest level since 2014.
The latest results highlight one of the main risks faced by the economy, with tighter financial condition weighing on consumption growth.
That’s particularly true with concern growing that next week’s GDP figure may come in weaker than forecast, with domestic consumption making up about 55% of total GDP.
ANZ economists David Plank and Mustafa Arif noted that tightening financial conditions were a concern.
“Even as the headline index improves, the ongoing weakness in sentiment around financial conditions is worrying – not in the least because of its strong correlation with consumer spending,” they said.
However, they remained optimistic that consumer confidence would continue to increase. They said that the rise in economic conditions was likely due to stronger labour market conditions.
They also noted the recent strength in NAB business confidence index, highlighting the divergence between business confidence and consumer confidence.
“In our view consumer confidence is likely to improve further over the next few months, albeit slowly, as elevated business conditions feed into stronger labour market conditions,”they said.”
“That being said, confidence may be volatile over the next few weeks given the flow of data culminating with the Q1 GDP release as well as evolving global political conditions.”