Consumer Sentiment Rekindles – Macrobusiness

Sub Levels

Westpac with the note.

The Westpac Melbourne Institute Consumer Sentiment Index fell by 7.9%, from 85.8 in April to 79.0 in May.

The Index has fallen back to just above the dismal levels seen back in March, which recorded the lowest monthly read since the COVID outbreak in 2020 and, before that, since the deep recession of the early 1990s.


Two significant events in the last month were the surprise decision by the Reserve Bank Board to raise the cash rate by another 0.25% in May and the federal budget.

The survey, which normally takes place during the week of the Reserve Bank’s Board of Governors meetings, was postponed for a week to gauge the impact of the federal budget on sentiment. This means we don’t have a ‘before’ and ‘after’ picture of the RBA’s unexpected decisions, but we do have a clear ‘before’ and ‘after’ picture of the budget. .

The sentiment index of those surveyed before the budget announcement was 81.3 (down 5.3% compared to April). Survey participants’ sentiment after the announcement was 75.3, down another 7.4%. Strictly speaking, about 60% of May’s decline could be attributed to the federal budget and the remaining 40% to factors such as interest rate decisions.


That’s probably too tight for your budget. Sentiment generally drops before and after a budget survey. Some consumers may have had unrealistic expectations.

Budget 2023 – specifically focused on the extent to which cost of living relief is delivered without increasing the challenge of curbing high inflation.

Subgroup details show not only a significant drop in sentiment after the budget among those most dependent on cost of living relief (low-income households, the unemployed, some renters), but also the following: It highlights both sides of this tension, with even such groups seeing significant declines. The biggest problem is inflation: households with mortgages.


More specific responses on how the budget will affect households indicate that this year’s budget is expected to provide some relief.

Our survey included standard questions we’ve been asking after every budget proposal since 2010 about the expected fiscal impact over the next 12 months. For 2023, 15.5% of those surveyed after the budget was enacted expected fiscal conditions to improve, while 27% expected fiscal conditions to deteriorate.

Self-rated “budget losers” outnumber “budget winners,” and this is almost always the case. In fact, outside of the pandemic period (when generous fiscal measures were needed), the average gap between optimists and pessimists is over 25%. In the light of history, the 2023 “gap” of 11.5% is far less unfavorable than the previous budget in October (28%), announcing one budget, or major series, from 2010 to 2019. It has only been improved by the 2018 budget. The “difference” in income tax cuts was only 9.1%.


This historical comparison, along with the apparent inflation-related policy restrictions, suggests that the federal government should be happy with consumer reaction to this year’s budget.

Interest rates were the main factor again in the May survey. As mentioned earlier, the RBA raised the official cash rate by another 0.25% at its May meeting the week before the survey. The move came as a big surprise to the market and most commentators, and clearly fueled consumer fears of further price increases in the future.

Nearly 70% expect floating mortgage rates to rise further over the next 12 months, and just over 40% expect them to rise by more than 1 percentage point. This compares with 61% and 34%, respectively, after the RBA’s “pending” decision in April (although well below November’s peaks of 81.5% and 60%). Consumers are right to heed the RBA governor’s clear warning that further tightening of monetary policy may be necessary, but the extent of these concerns seems overblown.


Breaking down the subgroups, low-income earners (-15%), renters (-13%), mortgage borrowers (-10%) and women (-10%) are more depressed. I understand this. Looking at sentiment state by state, Washington (-23%) and Queensland (-13.3%) experienced the most notable and sharpest drops. The greater drop in confidence among renters than among mortgage borrowers, despite strong interest rates, shows how tight the rental market and rising rents are for a group of around 30% of households. It highlights whether you are applying pressure.

All index components fell in the same month, household sentiment and economic expectations showed a more severe decline, and although household attitudes toward major purchases were more subdued, they remained very low by historical standards. to a low standard.

Fiscal views reversed all April gains, with the Fiscal year-on-year sub-index down 10% and the Fiscal next 12 months sub-index down 10.2%, both at March lows. returned to The “Economy, next 12 months” sub-index fell 9.5% and the “Economy, next 5 years” sub-index fell 9.2%, the latter returning to his lowest level seen in November.


The ‘When to buy major household items’ sub-index fell by just 0.4%, but this measurement of 81.7 is one of the weakest in the history of the index, which dates back to the mid-1970s.

Remarkably, it’s the weakest of any print during the deep recession of the early 1990s. While still modest, the improvement over the past two months is a tentative early sign that the high commodity prices that weighed heavily on buyer sentiment last year may be starting to moderate. There is a possibility.

When it comes to jobs, consumers remain relatively optimistic, but are slowly losing confidence. The Westpac Melbourne Institute unemployment expectations index rose 3.6% from 118.9 to 123.2 (higher index means more consumers expect the unemployment rate to rise in the year ahead). increase).


While the index is still comfortably below its long-term average of 129, its 23.6% gain from its latest low in September is consistent with a significant cooling in labor market conditions.

Housing sentiment registered a sharp rise in May despite a weak overall sentiment outlook and continued concern over interest rates.

The “time to buy a home” index rose 7.3% in May, expanding from an 8.2% rise in April. Buyer sentiment is still only reversing a massive 16% decline from February to March. At 76.3, the index returned to the narrow 75-80 range that has prevailed since interest rates began rising in March. The May level of the index is still 42% below its most recent peak in November 2020.


A standout result in this month’s survey is the House Price Expectations Index. It rose 10.7% to 144.3, the highest level since February last year. Recall that the “100” level of the index marks the point at which an equal number of respondents expect house prices to rise and those who expect them to fall. There are 144 optimists, significantly outnumbering pessimists (literally, 4 to 1). This optimism comes despite widespread expectations of further rate hikes.

Recent shifts in housing-related sentiment are “internally inconsistent.” Buyer sentiment, which is heavily influenced by affordability, typically does not see sustained gains when house prices and interest rates are rising. Strong immigration is clearly having an impact on the market, but this tension is likely to be resolved soon. A possible signal in this regard is that women’s price expectations are more restrained compared to men’s 16.5% surge. Overall, the women’s house price index is 8.5% lower for her than for men.

Rates are expected to remain unchanged at the next Reserve Bank Board meeting on June 6.


For boards, the consumer sentiment survey in May conveys a somewhat mixed message.

Meanwhile, consumer sentiment has returned to near historic lows sustained only during the deep recession of the early 1990s. The persistent pessimism clearly reflects the strong pressure on household disposable income from high inflation and soaring interest rates. Signs of this are also evident in actual activity, with various spending indicators showing a sharp slowdown.

Meanwhile, the survey continues to show signs of resilience in labor market conditions and renewed confidence in the housing market. Both were cited during the Board’s surprise rate hike decision in May.


We expect the Reserve Bank Board to rest again in June to await further information on inflation and economic conditions. Our core view is that economic weakness and clear progress towards the Board’s inflation target will keep the cash rate at its current level at its peak, but risks remain balanced. That’s what it means.

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