This time last month, the Roy Morgan Research (RMR) consumer confidence index had fallen sharply, following the Treasurer Chris Bowen’s announcement of a material deterioration in Federal Budget finances from a projected $18 billion deficit to over $30 billion.
Since that time, consumer confidence has surged according to RMR, rising 7.5% over four consecutive weeks to the highest level since mid-April 2013, on account of the increasing likelihood of a Coalition victory at the upcoming election:
As noted previously, the RMR consumer confidence survey tends to closely track the monthly Westpac-Melbourne Institute consumer sentiment index when averaged-out (see next chart).
As such, the recent surge in the RMR index is likely to signal a turning point for the upcoming Westpac-Melbourne Institute index as well.
Overall, I am not surprised by the apparent pick-up in consumer confidence as the election result becomes more clear. In fact, I believe their will be a further rises as the new Abbott-led Government enjoys a customary honeymoon period, after which sentiment will then likely fall back as the reality of the headwinds facing the economy and Budget reassert themselves.
