Today’s Murdoch press leads with Prime Minister Abbott’s warning:
… his colleagues to brace for growing community anxiety as the government considers spending cuts in the May budget.
On a day that the latest Newspoll saw support surging for the opposition Labor party – leading the government 54-46 on a two party preferred basis – Mr Abbott told a coalition joint party room meeting it would be a difficult year and a test of character.
He said the build-up to a new government’s first budget is always a difficult time, especially when there was such a “fiscal repair job” to do.
As noted by Houses & Holes yesterday, the latest ANZ-Roy Morgan Research (RMR) consumer confidence survey reported another significant fall in consumer sentiment, with the index down 1.4% over the week and by around 10% since the Federal Election, to be below the long-run average (see below chart).
The election honeymoon is clearly over for consumers and the relentless run of dour news around job cuts and Budget repair is taking its toll.
As shown in the next chart, there has been a strong correlation between the ANZ-RMR Consumer Confidence Index and real house prices – especially over the past decade – which suggests that the recent slump in sentiment, if maintained, could soon begin to weigh on house price growth (see next chart).
Perhaps more importantly from the RBA’s perspective – given their plan for housing construction to fill the void as the mining boom unwinds – there is also a strong correlation between the Consumer Confidence Index and dwelling approvals, which again portends a possible slowing of housing construction:
There is every chance that the RBA will be forced to cut interest rates again in the second half.
