The ANZ-Roy Morgan Research consumer confidence index has retraced following last week’s post-Budget bounce, falling by 1.1 points to 113.5 in the week ended 24 May, to be tracking marginally above the long-run average of 113.2 (see next chart).
According to chief economist, Warren Hogan, the employment outlook will be the key determinant of consumer confidence:
The fall of 1.0% in consumer confidence last week only slightly reverses the lift seen in the previous two weeks. Confidence now appears to be trending higher following the government’s Budget. In level terms it is hovering just above its long term average.
The response to the Budget this year has been much more positive than last year, and confidence now stands around 14% higher than levels recorded a year ago. While consumers have reacted more positively towards the government’s 2015-16 Budget, the sustainability of this lift in confidence and the prospects for further gains in confidence will be reliant on a number of factors.
The lift in confidence is unlikely to be sustained if key measures do not pass through the parliament. More importantly, confidence amongst consumers requires job creation and a stable, or better still, falling unemployment rate. As a key driver of employment, the outlook for business investment is now one of the main factors influencing consumer confidence in Australia. In this regard, we keenly await Thursday’s CAPEX numbers, including the survey of capex expectations.
Obviously, the massive mining capex unwind is still ahead, along with the shuttering on the local car industry in 2017 and the likely decline of dwelling investment from next year, so the outlook for employment over the medium-term is worrying.
Regardless, the below chart plots the most recent Westpac-Melbourne Institute Consumer Sentiment index against the latest ANZ-RM Consumer Confidence index, which both show the post-Budget bounce: