Economic uncertainty is taking its toll on Australian households

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Australian consumer confidence fell sharply last week as sentiment towards the economic outlook deteriorated sharply.

The ANZ-Roy Morgan consumer confidence index slid 2.3% to 115.5, more than offsetting the 0.3% increase the previous week.

Despite the fall, confidence levels still remain above their long-run average.

According to Jo Masters, senior economist at ANZ, the decline was likely due to weak wage and jobs figures released last week.

“Last week’s data on the labour market were a touch disappointing and have likely weighed on confidence, especially on households’ views on the economic outlook,” she said.

Recent falls in the Australian dollar, taking its decline to 6% against the US dollar since the American election, may also have dented confidence.

Reflective of the weak labour market data released during the week, hardly the news to inspire household confidence, all of the weakness was concentrated in sentiment towards the economic outlook, says Masters.

“Households’ views on economic conditions over the next 12 months and 5 years fell a sharp 5.6% and 7.5% respectively — partially reversing the gain over the past 3 weeks,” she said.

That was partially offset by improved sentiment towards current finances which rose 2.1%, more than reversing the 0.8% decline in the previous week.

Elsewhere sentiment towards finances in the year ahead was unchanged.

The final component of the survey — whether now is a good time to buy a major household item — dipped 0.7%.

Despite recent weakness in the index, Masters notes that consumer confidence remains well above its long-run average, something she says is consistent with an economy growing around trend, a buoyant housing market, and accommodative monetary conditions.

However, she believes that a recent loss of momentum in the labour market, along with moderating business conditions, “does warrant close monitoring”.

Underlining the need for close scrutiny, the RBA’s forecasts for stronger economic growth and inflation in the years ahead are premised on continued strength in household consumption levels and a slow pickup in wage growth.

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