The latest update of the ANZ-Roy Morgan weekly consumer sentiment index is out and once again it is not good reading.
Falling 1.1% in the past week, the index is now down more than 15% in the past five weeks and below 100 for the first time since May 2009.
ANZ-Roy Morgan has previously linked the start of the collapse in confidence to the leaks of measures in the federal budget which began in April.
The major theme emerging around the budget is the government’s ability – or lack thereof – to sell the severity of the cuts in government spending, particularly on welfare. The plummeting in consumer sentiment is clearly now tied to this and the big question is now whether this might translate into dramatic reductions in household spending which would affect the whole economy.
The headline figure might be scary but the underlying data does give hope for the economy (and the government) in the months ahead. While we’re clearly looking for the silver lining not the cloud, the ANZ noted:
Respondents’ perceptions of ‘economic conditions next year’ fell a sharp 6.2%, while moves across all other subindices were relatively modest. For example, perceptions of ‘financial situation compared to a year ago’ which is most correlated with households’ spending growth rose 1% last week.
So there is hope that concerns over the budget may recover once households see the real impact on them in the months ahead, in the same way as business confidence often diverges from actual conditions.
The ANZ’s Head of Australian Economics (Corporate & Commercial) Justin Fabo said: “We will continue to watch consumer confidence closely in coming weeks.” Amen.