Australian consumers are confident about themselves, but not the economy

Joe Hockey ringing the closing bell at the NYSE for the Monday session. Photo: NYSE / Twitter

Australian consumer confidence, in contrast to last year as budget leaks wrought havoc on sentiment, has improved heading into the federal budget.

The latest ANZ-Roy Morgan weekly consumer confidence index rose 1.7% to 110.6 last week on the back of large improvements in perceptions on household finances.

In what was likely assisted by the RBA’s rate cut delivered on May 5 perceptions on finances compared to a year ago jumped 5.6%, taking the subindex back to levels last seen in February, while that for the year ahead increased by an equally-impressive 4.5%.

However, while perceptions towards household finances improved, the economic outlook for the year ahead continued to sour, falling an additional 1.1% to 90. While that weakened, partially offsetting that deterioration, the extended economic outlook – that which looks out five years – improved 1% to 104.

Here’s ANZ’s chief economist Warren Hogan’s assessment (our emphasis in bold).

The RBA’s rate cut last week looks to have supported households’ confidence around their finances. However, it is no surprise that consumers remain concerned about the economic outlook with unemployment reported to have increased to 6.2% in April. Moreover concerns around the outlook are likely to be heightened leading up to the release of the Budget tonight. In an environment of declining investment, rising unemployment and low inflation, the announcements in the Budget tonight will be critical in shaping consumers’ view of the economic outlook. So far the Government’s pre-Budget announcements do not appear to be impacting confidence in the same way as last year, although overall confidence has been trending lower since the start of 2015. The progress of our weekly measure of consumer confidence will be an important first read on the impact of the Government’s Budget on the underlying economy. Going forward, the sustainability of consumer confidence will be important in assessing whether rate cuts and new Budget measures will ultimately lift household spending.

It’s a pretty open and shut case then. The RBA, through the use of monetary policy, has provided household confidence an additional boost through the rate cut it delivered last week. Now, to unlock the potential created by that move, treasurer Joe Hockey must be able to reassure households that the outlook for the economy is not as bleak as many currently expect.

That job begins tonight, at 7.30pm in Canberra, when he hands down his second budget. The nation, already on edge about the outlook for the economy, will be watching. They’re feeling confident about their own position, all that’s missing now is confidence in the economy.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.