Consumer sentiment registers a dip.
The latest The Westpac Melbourne Institute Index of Consumer Sentiment fell by 1.1% in May from
99.0 in April to 98.0 in May. The survey was conducted from May 8 to 13, two days were pre- Budget and four were post-Budget.
However there was virtually no impact from the Budget, Westpac chief economist, Bill Evans said, with the Index for the pre-Budget period printing at 98.1 and for the post-Budget period at 97.9. “The small overall move this month masked some significant developments amongst other Indexes in the survey. Respondents’ confidence in housing and the outlook for house prices deteriorated sharply while the assessment of the Budget around the outlook for family finances was decidedly weaker,” Evans said.
“In this survey we asked: “What impact do you expect the Budget to have on your family finances over the next 12 months?” The survey showed 7% indicating ‘improve’ and 33% indicating ‘worsen’. The remainder indicated either ‘stay the same’ (50%) or ‘don’t know’ (10%). “In fairness, the responses to this particular question appear to carry a consistent negative bias,” he said. In the previous three Budgets ‘improve’ registered: 10% (2016); 9% (2015) and 1% (2014). The average ‘improve’ score for the four previous Budgets was 7.3%.
Evans said the disappointment for the government will be that despite its high expectations and focus on spending, particularly infrastructure, education and health, consumer sentiment remains stuck below the significant 100 level indicating that pessimists continue to outnumber optimists. “We can see an interesting story by analysing the ‘pre’ and ‘post’ movements in the components of the Index. The two components representing consumers’ assessments of their finances both deteriorated in the post-Budget sample. The ‘family finances compared to a year ago’ sub-index fell from 83.4 to 81.4 after registering 85.2 in April. The ‘family finances over the next 12 months’ sub-index tumbled from 104.8 (‘pre’) to 92.1 (‘post’) after registering 106.2 in April.
However, there was a surprising boost in spending intentions with the ‘time to buy a major household item’ sub-index jumping from 108.6 (‘pre’) to 124.9 (‘post’) following a print of 119.3 in April. Apart from some tax relief for businesses with the extension of the tax deductibility for SMEs purchasing items up to $20,000 for another year and extended to a larger group of businesses, there does not appear to be any other obvious aspect of the Budget that would have boosted this optimism, Evans said.
There was an also encouraging improvement in the outlook for jobs with the Unemployment Expectations Index falling 3.4% from 140.3 in April to 135.5 with lower reads meaning fewer consumers expect unemployment to rise over the next year. This supports a pattern of gradual improvement in this Index.
Confidence in housing was jolted in May, with the ‘time to buy a dwelling’ index falling 6.5% from 96.3 in April to 90.0 in May. “Apart from one reading in 2010 this is the lowest print for this Index since 2008 when house prices were falling and the Reserve Bank was raising the cash rate.” This could be explained by tighter conditions for bank lending and rate increases for investors supplemented by the spectrum of initiatives in the Budget to discourage housing investors.
“Consistent with that response, sentiment towards house prices also took a substantial hit in this survey indicating that some heat may be coming out of the housing market as macro prudential policies and some Budget initiatives may be discouraging housing investors. Despite market pricing pointing firmly towards rate hikes we continue to expect that the Reserve Bank will keep rates on hold over the course of the remainder of 2017 and 2018”, Evans said.