The Westpac-Melbourne Institute Index of Consumer Sentiment rose 1.9% to 100.7 in April from 98.8 in March.
The survey was conducted over the period April 1 to 5 and captures consumer reactions to the Federal Budget. While the month to month rise in sentiment is fairly muted, the survey detail suggests the Budget was well-received. Sentiment over the course of the week showed a clear boost, with sentiment amongst those surveyed post-Budget 7.7% higher than sentiment amongst those surveyed pre-budget – the most positive turnaround since we began tracking pre and post Budget responses in 2011.
The key issue will be whether this boost from the Budget is sustained. Certainly the ‘pre Budget’ print of 96.8 showed a further deterioration in sentiment from the previous print of 98.8, despite what was already quite a sharp 4.8% fall in March. Persistent weak wages growth; falling house prices; and the perceived rising cost of living are all weighing on consumers. This is best captured in the component of the Index – ‘family finances compared to a year ago’ – which declined 4.9% in April (showing little movement between pre and post Budget responses) and is down 9.6% on a year ago. That compares to the headline Index which is only down by 1.6% over the same period.
The month’s survey included an additional question asking consumers about the impact they expect the Budget to have on their finances over the next 12 months. Responses again suggest the 2019 Budget was well-received. Around 15% of consumers expected it to improve their finances; 51% expected no change; and 22% expected it to worsen their finances. While the overall balance is negative, consumers appear to carry a consistent negative view around budget assessments. At –8.5% the net improve/worsen reading is less negative than last year’s net –10.4% and easily the ‘best’ response we have seen since we began running this question in 2010 (the average reading being –26.6%).
Tax relief was again a key feature of this year’s Federal Budget with new measures building on the seven–year personal income tax plan announced last year. The main near term measures are clearly targeted at ‘low and middle income earners’. Accordingly it is no surprise that sentiment showed more positive responses amongst consumers in these income groups – both the post-Budget lift and assessed impact on family finances were markedly more positive amongst consumers with incomes in the $60–100k a year range.
Other factors that may have impacted sentiment in April include: a continued lift in the ASX, now up nearly 10% from its late 2018 levels; but negatives around petrol prices (average pump prices nationally up 18¢/litre since early February) and continued declines in house prices.
The month to month gain in sentiment was driven by a solid rise in expectations for the economy and family finances with some offsetting drag from weaker assessments around current finances and ‘time to buy a major household item’.
The Budget appeared to shore up confidence around the economy, which has had a shaky start to the year with choppy reads in the previous three months. The ‘economic outlook, next 12 months’ sub-index rose 6.2% in April, regaining most of the ground lost in March. The ‘economic outlook, next five years’ sub-index also rose 5.9%, retracing all of the previous month’s decline. Both sub-indexes are again in net positive territory above 100 and well above long run averages.
