― The Westpac–Melbourne Institute Consumer Sentiment Index rose 6.4% in May from 96.2 in Apr to 102.4. This is a positive result and the highest reading since Jan last year.
― The two driving forces behind this month’s gain are the Budget and the RBA’s May rate cut. The survey detail suggests a positive Budget response was the dominant factor, a stark turnaround to the big negative impact this time last year.
― The May gain was broad based with most subgroups recording sentiment rises. There were some notable negatives though. In particular, consumers in WA recorded a disconcertingly sharp 7.7% fall and much weaker reads across most aspects of the survey.
― Our annual additional survey questions on the expected impact of the Budget on family finances shows a uniformly more positive reception compared to last year. While not widely expected to be positive for family finances, most consumers expect this year’s Budget to have no impact their finances. That compares to last year when most consumers expected the Budget to have a negative impact.
― Our CSI± measure – a modified sentiment indicator that we favour as a guide to actual spending – showed a more muted 1.5% gain. While CSI± is still pointing to sub-trend spending growth, it is much improved on last year’s contractionary reads.
― The sub-index on ‘time to buy a major item’ was notably softer, recording a 1% dip. The Budget and May rate cut apparently did little to lift attitudes towards big ticket purchases.
― The ‘time to buy a dwelling’ rose 5%, a positive but more muted rate cut response than that seen in Feb, likely reflecting the lack of a ‘surprise element’ this time around. Buyer sentiment is still notably weaker overall and showing more pronounced divergences across states with a notably sharp weakening in WA but somewhat surprising strength in Qld.
― The Westpac-Melbourne Institute Consumer House Price Expectations Index fell 3.2% in May to be down 3% on its level a year ago. At 147.3, the Index nationally remains well above the long run average of 125 but price expectations have shown a sharp deterioration in WA.
― The Westpac-Melbourne Institute Unemployment Expectations Index fell 5.8% to 147.3, marking a positive improvement (lower readings means fewer consumers expect unemployment to rise). The Index is still pointing to fragile conditions overall and remains well above its long run average of 130. State divergences remain pronounced.
My own take is that the Budget is more the absence of a negative rather than an outright positive. It may boost spending at the margin but not much. More promising are the Budget incentives to spend, although they’re only short term.
As for wider issues, Western Australia is alarming with neither a rate cut, nor bailout, nor friendly Budget, nor iron ore price rebound, preventing an outright collapse in sentiment. House prices, unemployment expectations, and general financial health measures all tanked. A major accident is building in associated markets.
In short, there is much negative as there is positive in this survey and I do not see it as a turning point.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
