The post budget bounce in Australian consumer has been entirely unwound, and then some, in June.
Having surged by 6.4% in May, one of the largest increases recorded in the past five years, the Westpac-MI consumer sentiment index collapsed by 6.9%.
Not only is the index now back below its long-run average, at 95.3, it now sits at the lowest level seen since January this year.
The decline was also the largest in percentage terms since May 2013.
In line with the weekly ANZ-Roy Morgan consumer confidence survey released earlier today, four of the survey’s subindices fell with perceptions on the economic outlook particularly weak.
The measure on economic conditions in the year ahead slipped by 7.7% while that looking ahead five years collapsed by 17.1%. While family finances compared to a year ago registered an increase of 1.6%, in what is a negative lead indicator for household spending in the months ahead, the measure on family finance in the in the year ahead dropped by an alarming 8.9%. Reflective of that fall, the subindex on whether now was a good time to buy a major household item slid 2.5%.
Westpac’s senior economist Matthew Hassan described the bounce seen in May as a “relief rally” with the sharp decline in June more reflective of “broader concerns about the outlook for the Australian economy”.
“This is a surprisingly weak result. It now appears that last month’s surge of optimism was a brief ‘relief rally’ following the RBA’s May rate cut and a Budget that was less ‘damaging’ than many feared. With these factors now behind us, sentiment has reverted back to a level more reflective of broader concerns about the outlook for the Australian economy. At 95.3, the Index is 1% below its pre-Budget level and the weakest read since the start of the year”.
Hassan sights the recent decline in Australian the ASX 200, down 8.5% since the start of May, the weak internal componentry of the March quarter GDP report and concerns about job security as potential factors behind the sharp reversal in sentiment.
“The March quarter national accounts, released mid-way through the survey week, would also have played on concerns about the economy. Although GDP growth was stronger than expected in the quarter, with a 0.9% rise, the annual pace of growth remained subdued at 2.3%. Much of the detail in the accounts was also poor with incomes under continued pressure from falling commodity prices, and both consumer spending and business investment weak.
Job loss fears remain a major concern. The Westpac Melbourne Institute Unemployment Expectations Index rose 3.8% to 152.8 (higher readings indicate increased expectations that unemployment will rise over the year ahead). Although the Index has improved slightly over the past year it is still at very high levels by historical standards – the average reading since the mid 1970s has been 130. High readings on unemployment expectations have been a persistent feature over the last 4yrs and point to a perceived lack of job security as a key restraining factor for consumers”.
Despite the horrible sentiment reading, Hassan maintains the view that the RBA will leave rates steady throughout this year and next.
“The Reserve Bank Board next meets on July 7. We expect that the Board will hold rates steady but continue to retain a ‘soft easing bias’. Since the last Board meeting, evidence of weak consumer spending and a deteriorating outlook for business investment along with this survey result will keep the Bank alert to disappointing economic progress. Our current view is that rates will remain on hold throughout 2015 and 2016 while recognising that since the last Board meeting the case for even lower rates has strengthened.
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