The ANZ-Roy Morgan Research consumer confidence index retraced by 0.8 points to 115.4 in the week ended 13 December, but is still tracking above the long-term average of around 113 (see next chart).
The decline was broad-based, with four of the five sub-indices retracing.
According to Felicity Emmett, co-head of Australian economics at the ANZ, the slight deterioration in confidence was likely driven by the deteriorating Federal Budget:
Consumer confidence fell modestly last week, but remains well above levels seen last Christmas. Stronger employment growth and a falling unemployment rate are likely supporting confidence at above-average levels, although news around the Government’s Mid-Year Economic and Fiscal Outlook perhaps weighed slightly on sentiment this week.
The MYEFO is likely to show a deterioration in the Budget’s underlying cash balance as falling commodity prices and lower potential economic growth hit revenue projections. What will be important for consumer confidence going forward, however, will be how the Turnbull government responds to the deterioration in the fiscal outlook. In the near term, though, the strength in the labour market is likely to keep consumer confidence elevated.
The below chart plotting the most recent Westpac-Melbourne Institute Consumer Sentiment index against the latest ANZ-RM Consumer Confidence index shows that confidence levels are reasonable at the moment:
Looking further ahead, our view is that when the housing market starts correcting next year, coinciding with the ongoing slump in commodity prices and mining investment, as well as the closure of the car industry from October 2016, then consumer confidence (and the economy) will get smashed.
