The weekly ANZ-Roy Morgan consumer confidence data is out and it shows a slight recovery in sentiment for the first time since the dramatic slide that started in mid-April, when we got the first leaks about the deep government spending cuts in the federal budget.
Consumer confidence rose 2.9% last week – the first increase in six weeks, in what ANZ says “is a tentative, positive sign that the sharp deterioration in consumer confidence is abating.”
This is good news, with qualifiers. Goldman Sachs has noted what it called an “audible snap” in consumer confidence around the budget. The big concern for the economy is that weak consumer confidence could translate to significant reductions in consumer spending.
We’ll get to the qualifiers, but first here’s the chart:
ANZ notes, however, that “the detail was not quite as positive”.
The bounce in confidence was driven by a sharp improvement in perceptions of ‘economic conditions next year’ (+14.5%), and to a lesser extent, perceptions of ‘economic conditions in the next 5 years’ (+4.0%). However, perceptions of ‘financial situation compared to a year ago’ which is most correlated with household spending growth fell 3.1% last week. The index is now down a sharp 15% since the most recent peak three months ago and suggests consumer spending could soften in the near term.
Here’s the chart for that “financial situation compared to a year ago”. It’s still a scary chart for the short-term.
ANZ’s bottom line is that consumer spending could be dampened in the near-term but should recover later in the year. But there’s an interesting political sub-plot here. When you look at the longer term numbers, Australians are clearly optimistic that things will turn around. This was also reflected in the Westpac-MI consumer sentiment survey for May. One way of looking at it is that people recognise the cuts are important, but are worried about how they are going to adjust to it all.