Australian consumer confidence holds the vast majority of its post-budget bounce

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Having hit a six-month high following the federal budget, Australian consumer confidence dipped fractionally last week.

The weekly ANZ-Roy Morgan index fell 1.0% to 113.5 with softer expectations for economic conditions in the year ahead, along with a sharp decline on whether now is a good time to buy a major household item, offsetting improved readings elsewhere in the survey.

Despite the slight stumble the index remains above its long-run average, something ANZ chief economist Warren Hogan picks up on.

The fall of 1.0% in consumer confidence last week only slightly reverses the lift seen in the previous two weeks. Confidence now appears to be trending higher following the government’s Budget. In level terms it is hovering just above its long term average.

The response to the Budget this year has been much more positive than last year, and confidence now stands around 14% higher than levels recorded a year ago. While consumers have reacted more positively towards the government’s 2015-16 Budget, the sustainability of this lift in confidence and the prospects for further gains in confidence will be reliant on a number of factors.

The lift in confidence is unlikely to be sustained if key measures do not pass through the parliament. More importantly, confidence amongst consumers requires job creation and a stable, or better still, falling unemployment rate. As a key driver of employment, the outlook for business investment is now one of the main factors influencing consumer confidence in Australia. In this regard, we keenly await Thursday’s CAPEX numbers, including the survey of capex expectations.

Given softer business investment intentions was one of the chief catalysts behind the RBA’s decision to cut interest rates in May, like ANZ, many will be analysing Thursday’s report closely to see if there are any signs that businesses, particularly in the non-mining sectors, are looking to ramp up spending.

Should capital spending intentions for 2015/16 improve sharply from what was was conveyed in the December quarter survey, there’s every likelihood that the bounce in consumer confidence will be sustained in the months ahead.

Consumers will see that businesses are looking to invest which, in turn, may lead to greater levels of household consumption. One will feed on the other, increasing the likelihood that economic growth will exceed expectations helping to reduce the overall level of unemployment.

However, should business expenditure intentions remain subdued, something that could be the case given the retrospective nature of the CAPEX report, it’s unlikely that the surge in confidence can last if economic conditions fail to follow suit.

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