Westpac’s Red Book for June is out and is fantastic reading for anyone interested in the state of the Australian consumer.
The Westpac–Melbourne Institute Index of Consumer Sentiment rose 1.9% in Jul, clawing back a little more of the sharp post-Budget fall in May. At 94.9, the Index remains in pessimistic territory and down 14% on the optimistic reads late last year.
― Budget-related concerns likely remained the focus with other influences minor in the month. While the absence of a rebound is disappointing, both the fall and the recovery to date are in line with the average path of sentiment seen during previous Budget shocks.
― The detail showed an improvement in forward views on family finances but only minor changes in other components.
― CSI±, our modified sentiment indicator that we favour as a guide to actual spending, also posted a small 2.4% rise but continues to point to a marked slowdown in spending growth to just under 1%yr by Q4. We continue to apply a heavy discount to these readings on the basis that some of is a temporary over-reaction to the Budget.
― Latest data on actual spending points to a further slowdown in Q2 with a notable weakening in retail sales. That said, weather conditions appear to have had an impact with business surveys and vehicle sales suggesting a somewhat milder slowdown.
― The sub-index on ‘time to buy a major item’ fell 2.1% in Jul dropping back below its long run average. Recent retail sales figures suggest ‘small ticket discretionary spending’ has softened but housing-related sales are holding up reasonably well.
― Consumer views on housing have been mixed in recent months with a clear tension between the outlook for prices and assessments of ‘time to buy a dwelling’. The index tracking the latter fell back 8.3% in Jul, while the Westpac Melbourne Institute House Price Expectations Index rebounded 12.1%. The mix is still broadly consistent with a housing slowdown but a ‘soft’ rather than ‘hard’ landing.
― Confidence in the labour market remains stubbornly weak. The Westpac-Melbourne Institute Unemployment Expectations Index registered a slight 0.3% decline (lower reads indicate reduced concern around the labour market). It remains 6% above its 2013 average and very high by historical standards.
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.
