Bad news for the economy with the latest read on consumer sentiment collapsing 3.2% to 96.2 according to the Westpac Melbourne Institute survey for April.
Given last year’s experience with the Budget it’s not really a surprise that consumers are worried at the moment. But Westpac Chief economist Bill Evans said this was a “disappointing result”. Evans said Westpac would have “preferred to have seen some upward momentum in the index going into the important Commonwealth Budget that will be released next month.”
He’s now worried that “with the Index entering the Budget period well below the key 100 level and with downward momentum we must recognise that confidence is again looking vulnerable.”
That said, Evans does identify some solid reasons why confidence has fallen including:
- The “almost complete retracement of the sharp fall in petrol prices seen earlier this year”;
- The “failure” of the RBA to deliver a rate cut given “expectations, including widespread media speculation; and
- “High profile coverage of the sharp fall in the iron ore price would also have been significant.”
Not only did these factors undermine consumer sentiment but “also conspired to undermine confidence about jobs and the economy.” That meant the unemployment index, which accompanies the sentiment index, surged 8.5% to 156.3 (higher is not good). That puts this index in the “top 7 readings since 2009”, Evans says.
Like the ANZ Weekly Consumer Confidence index, the drivers of the fall were the outlook for the future with the “sub-index tracking views on the ‘economic outlook, next 12 months’ falling by 6.7%, while the sub-index on ‘economic outlook, next 5 years’ was down by 10.2%.”
However, Evans is now “extremely confident that the Bank will finally deliver the much anticipated second cut of 25bps on May 5.”
This sentiment survey, and the ANZ survey earlier this week, seem at odds with the NAB Business survey yesterday.But, what this difference highlights is just how important the Budget was in cruelling confidence in 2014 and how worried consumers are about the 2015 budget.
If business conditions and confidence can be maintianed and employment continues to grow then consumer sentiment should respond.
But, there is one very large caveat. The Government has to deliver a sensible and reasonable budget.