Westapc’s May Red Book is out and the summary is a very nice wrap of where the consumer is at:
The Westpac–Melbourne Institute Index of Consumer Sentiment fell 7% in May, extending Apr’s 5.1% decline to completely reverse the gains earlier in the year. At 97.6, the Index is back in ‘cautiously pessimistic’ territory for the first time since Oct with sentiment at its lowest ebb since Aug last year.
The main driver this month appears to be a negative reaction to the Budget and concerns about the economic outlook. This more than off set any positive boost to sentiment from the RBA’s decision to lower interest rates 25bps at its May meeting and other positives in the month around retail sales, jobs, equity markets and house prices.
A specific Budget question added to this month’s survey shows 46% of consumers expect it to have a negative impact on their finances, a significantly more negative response than seen when the question was run in 2010, 2011 and 2012. Aside from its direct financial impact, consumers would also have been concerned by the rapid deterioration in the Government’s
finances, what this may imply about economic conditions and the economic impacts of policy changes.The May fall in sentiment was broad-based but saw particularly big declines in the sub-index tracking views on the near term outlook for the economy (–13.4%) and amongst consumers in the mining states of WA and Qld. This suggests some of the increased concern around the economy may come from actual developments ‘on the ground’ in exposed states.
CSI±, our modified consumer sentiment indicator, which includes the Westpac Risk Aversion Index, was less impacted by the May fall but is still down sharply over the last 2mths (–7.5%). The measure now points to per capita consumption contracting at a 0-½% annual rate – implying annual growth in total consumption of 1-1.3%yr.
The sub-indexes tracking ‘time to buy a major household item’, ‘time to buy a vehicle’ and ‘time to buy a dwelling’ were all more resilient than other parts of the survey in May. The ‘time to buy a major item’ index remains near its long run average. The ‘time to buy a vehicle’ and ‘time to buy a dwelling’ indexes actually rose in May with both well above their long run averages reflecting strong affordability levels. The RBA’s May interest rate cut clearly provided a boost.
Unemployment expectations showed a significant deterioration in May as well with a 5.4% fall building on Apr’s 1.3% decline. Consumers’ fears of job loss are below their 2012 peaks but are still at historically high levels. Notably, the deterioration in May was driven by consumers in the mining states of Qld and WA which have also seen a more abrupt slowdown in their labour markets since the start of the year.
In short, at this stage, rebalancing is struggling.
