Consumer confidence rose a further 2.4 per cent to 116.2 in the week ending 27th July and has now completely retraced the sharp deterioration seen in the weeks around the Commonwealth budget. This suggests the ‘sticker shock’ from the budget was temporary, with the improvement in house prices and employment and recent signs of a pick-up in activity in the global economy likely supporting confidence at long-run average levels.
Consumer confidence is also now back in line with business confidence, good news for demand in the economy and the business investment outlook. While the weakness in retail sales growth in May in part reflected the hit to confidence, we think retail spending should also strengthen.
Critically, households’ perceptions about the ‘financial situation compared to a year ago’, a subindex most closely correlated with consumer demand, has now returned to levels seen before the Budget.
“Consumer confidence is now consistent with moderate growth in consumption and economic activity. The good news is that the headline impact of the Budget appears to have been temporary and the more enduring features of the economy, such as rising share and house prices, job creation and a stable world economy, are now driving consumer attitudes to spending and finances,” ANZ Chief Economist Warren Hogan said.
While the recent improvement in confidence is an encouraging sign, ANZ still expects that consumer spending growth will remain moderate this year before improving next year as the non-mining recovery gathers momentum.
This is an edited excerpt from ‘ANZ-Roy Morgan Australian Consumer Confidence – confidence back above long-run average levels’. The full article is available on ANZ Live.