The budget may have just sent Australian consumer confidence to its lowest level in 17 months

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Consumer confidence in Australia fell sharply last week after three straight weeks of modest gains.

ANZ’s Roy Morgan Consumer Confidence fell 2.6% to 109.4. That’s its lowest level since September 2015 and well below the long-term average of 113:

Of the five indices that make up the index, four posted sharp falls last week.

ANZ senior economist Jo Masters said that last Tuesday’s federal budget most likely had an effect on the lower confidence reading.

“Some measures, such as schools funding and the First Home Super Saver Scheme went some way to addressing the issue of fairness; but consumers appear to be responding to the big changes in the budget that will hit their hip pockets, such as the proposed 0.5 percentage point increase in the Medicare levy in two years’ time,” Masters said.

While the budget is one factor, Masters also noted that the dual forces of low wage growth and high house prices may be starting to catch up with the Australian consumer.

Households’ views toward long-term economic conditions registered the sharpest fall of 5.5%, which offset the previous two weeks of modest gains. Views towards current economic conditions fell by 3.9%, but remain just above the low reached in early April.

The four-week moving average for both current and future economic conditions remains well below the long-term average.

The view on household finances was equally pessimistic last week, with future financial conditions registering a sharp drop of 4%:

That fall pushed the four-week average for future financial conditions below the long term trend. Sentiment towards current financial conditions also fell sharply by 3.2%.

With some indications that high house prices may be starting to cool, the negative effects of Australia’s low wage growth have become more apparent. Masters doesn’t expect tomorrow’s wage data to provide a boost to sentiment.

“Consumers may be more sensitive about their finances in an environment where house price growth is expected to moderate and low wage growth is viewed as increasingly endemic,” Masters said.

“We expect wage data tomorrow to show private sector wage growth of just 1.7% in the year to the March quarter, a record low.”

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