Consumer confidence rose 6.2% in April hitting an 11-year high, according to the latest data from the Westpac-Melbourne Institute Index which Westpac chief economist, Bill Evans said was an “extraordinary result”.
The Index is now sitting at its highest level since August 2010 when Australia’s post-GFC re-bound and mining boom were in full swing.
“The survey continues to signal that the consumer will be the key driver of above-trend growth in 2021,” Evans said. “Firstly, the survey was conducted in the week following the unwinding of the JobKeeper program and initial fears that this and associated job losses would undermine confidence have proven to be unfounded. “Secondly, there has been disappointing progress on the vaccine roll-out locally. Yet households appear to be resilient.”
Confidence also appears to have been buoyed by positive news on the labour market, with job vacancies 27% above the pre-Covid level in February last year.
Confidence also improved across all states, although the stand-out was Victoria which is still benefitting from reopening, and where confidence surged 11.8%.
However, there were some headwinds with housing affordability weighing on home buyer sentiment with big ticket item spending intentions not nearly as buoyant as the overall index. A somewhat surprising, but modest dip of 0.2%, was felt in the ‘time to buy a major household item’ sub-index, which is on par with its 2018 levels, and around 15% below the highs of the 2009-10 period.
“Perhaps the relative underperformance of this component reflects expenditure switching with purchases of household goods relatively strong during the pandemic but possibly waning now that reopening is allowing consumers to spend more freely,” Evans said. “Last year saw spending on durables rise 11.5% but spending on discretionary services slumped 27%. It is reasonable that the boost to spending from the elevated confidence levels will favour the services sector.“
The ‘time to buy a dwelling’ index fell 7.9% and is now 18.8% below its November peak. ”the buyers appear to be discouraged by the recent surge in prices and implications for affordability,“ Evans said.
A similar rise in consumer confidence came from the ANZ-Roy Morgan Consumer Confidence Index that showed a 6.4% increase that arrived on the back of big rebounds in Greater Brisbane and NSW which had been impacted by cases of Covid-19 a week earlier and tighter restrictions including a short lockdown in SE Queensland.
According to ANZ head of Australian Economics, David Plank, the receding of the Brisbane lockdown and announcement of the Trans-Tasman travel bubble saw confidence jump sharply, to above its long-run average and the highest level since late 2019.
“In an earlier report we argued that while the direct economic impact of the Trans-Tasman travel bubble might be a small negative, it was likely to be more than offset by the impact on sentiment as the restoration of normality comes at least somewhat closer. These data confirm this expectation,” Plank said.