Australian household sentiment continued to slide last week, after hitting a 22-month high in early November, with the latest ANZ-Roy Morgan consumer confidence index falling 1.5% to 112.8.
The decline, the third in a row, left the index fractionally above its long-run average of 112.7.
Having outperformed in recent months on the back of Malcolm Turnbull replacing Tony Abbott as prime minister, sentiment towards the economic outlook continued to soften, both over the short and longer term.
The subindex on economic conditions in the next 5 years fell 3%, taking its three-week decline to 7.3%, while the subindex on economic conditions over the next 12 months fell by a larger 3.4%.
Elsewhere perceptions towards family finances from a year earlier skidded 5.1%, more than mitigating a 1.5% improvement in the outlook for the 12 months ahead. Perceptions on whether now was a good time to buy a major household item rose 1.6%.
According to Warren Hogan, chief economist at the ANZ, the slide in confidence levels suggests the honeymoon period for the Turnbull government may now be over.
Confidence has fallen for three consecutive weeks now, which may be an early sign that the honeymoon period for the Turnbull government is over. This turnaround in confidence has been mainly driven by a deterioration in consumers’ views towards the economic outlook.
Last week’s soft capex report highlights the challenges facing the non-mining economy. With news flow continuing to focus on the mixed conditions in the economy, it will be difficult to sustainably lift consumers’ views towards the economic outlook.
Ultimately, the labour market will continue to be a key factor driving both confidence and the RBA rates decision. As such, next week’s job advertisements will provide more indication on this front.
While strong labour market conditions will be helpful to help offset negative impacts from record-low wages growth, falling commodity prices and softer house prices, it is interesting to note that the recent decline in sentiment corresponded with the release of the red-hot October jobs report from the ABS in mid-November.
According to the ABS, the economy generated nearly 60,000 jobs leaving the unemployment rate sharply lower at 5.9%, dashing expectations for further near-term rate cuts from the RBA.
While other significant factors may have contributed to the recent decline in sentiment – the Paris terrorist attacks for one – the reduced likelihood for lower borrowing costs may be also weighing on sentiment, at least in the short term.