The government’s sales campaign on the federal budget is in full swing as they seek to convince Australians that the measures introduced, although they will hurt many households, are in the country’s best long run interests.
How they counter the $80 billion cut to State spending on education and hospitals over the coming decade, and the aggressive response so far seen from the state premiers, will be critical to the economic outlook for the economy going forward. Businesses will be buoyed by some of the measures, including the cut to the company tax rate, but if consumers are sufficiently spooked by the potential impact on their household budgets this will reverberate through the economy.
In the weeks ahead of the budget the weeks of leaked initiatives dragged significantly on consumer sentiment, which fell 11% as measured by the ANZ-Roy Morgan Weekly consumer sentiment index. Markets have been pretty flat this week, with the leaks meaning that the measures were priced in by budget night.
There will be polls which will show how the budget is being received politically, of course, but there’s an important difference from the economic impact. As companies and consumers get to grips with the full implications, there are some signposts in the economic data that will tell us how the budget measures are washing through the economy.
Here is a list of the indicators to watch. And we’ll be covering them all, live, on BI.
Tuesday May 20: ANZ-Roy Morgan Weekly Consumer Sentiment
A continued fall in this index would be a bad sign for retail sales and domestic growth – a signal that consumers might be heading into their caves until the dust settles and the real cost to them is understood.
Wednesday May 21: Westpac-MI Consumer Sentiment for May
This survey is likely to be taken over this weekend so it will give a solid read on the impact of the budget on the economy. The sub-indices will be worth a close look too.
The post-election bounce in sentiment has already evaporated and sentiment is now below its long run average. As with the more frequent weekly index this will be a key indication of consumer spending.
Tuesday June 3rd: RBA board meeting and interest rate decision
However unlikely the RBA is to move the cash rate, in either direction, in June the market will undertake a forensic analysis of the words they use to see if they judge a growing downside risk to growth from the impact of the budget.
Wednesday June 4: retail sales for April
Even though April is somewhat historic in relation to the budget the strength of April’s sales, after a weak result of just 0.1% growth in March, will give a solid lead into whether there was already a slowdown occurring in the domestic economy – with consumers nervous about the budget – or whether growth was still healthy.
A weak number will indicate consumer sentiment was dropping ahead of the release.
Wednesday June 4: building approvals for April
Building approvals is where the RBA’s monetary policy rubber hits the road. Already slowing down in March, a further slowdown will worry the market and signal a weaker 2nd quarter in 2014.
Tuesday June 10 is the big day: ANZ Job Ads and the NAB Business Survey for May
This is the critical data over the next few months.
Consumer sentiment may well take a hit and retail spending may fall a little in the wake of the budget, but the ANZ job ads and NAB Business Survey will show the jobs impact. More workers will be a strong antidote to any potential budget-induced weakness.
We can’t overstate how important this data will be.
The NAB business survey is the single most important data release each month because it captures such a great snapshot of the economy. Recently there has been an improvement in conditions and particularly the employment index which has signalled a strengthening economy – so much so that NAB Chief Economist Alan Oster dropped his call for the RBA to cut rates late this year.
This survey for may is vital to get a read on the impact of the budget on business.
Thursday June 12: The May jobs report
So far this year the Australian economy has been adding jobs much faster than most expected, with more than 100,000 positions created in the first four months of the year.
Tuesday July 1st: RBA board meeting and interest rate decision
Two months out from the budget the RBA’s will have a good handle on where the economy is at and their words and and shift in bias on future interest rates will inform markets and, again, give a handle on whether there might be some downside risks to growth from the impact of the budget.
It’s going to be a fascinating few weeks ahead.
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