Third Monthly Decline In Consumer Confidence

Third Monthly Decline In Consumer Confidence

The Westpac-Melbourne Institute (WMI) consumer confidence index fell just 0.2%m/m in March, after slumping 4.6% in February. The third straight monthly decline was milder than we had expected, given the survey was conducted last week amid an avalanche of bad news. Not only did the RBA elect to leave the official cash rate unchanged, but 4Q GDP printed negative, and a slew of high-profile job losses were announced. Pessimists continue to outweigh optimists, with the index falling to 85.6 in March from 85.8 in February, remaining below the neutral level of 100 for the thirteenth straight month.

Expectations of bonus Government welfare payments probably prevented a sharper fall in confidence. The Government’s A$42 billion fiscal stimulus package announced in early February included more cash payments to low- and middle-income earners of up to A$900 each, delivered this week. In our view, though, a large portion of these one-off payments will be saved, not spent. This was supported by the WMI survey, which reported that consumers believe the ‘wisest place for savings’ was in bank deposits (32.8%) or being used to pay down debt (23.4%).

Sentiment fell in four of the five major categories of the index, with the biggest fall being in sentiment toward family finances a year ago (-11.4%). Confidence also was weaker toward family finances a year ahead (-0.3%), the economy one year ahead (-1.3%), and buying major household items (-3.3%). Sentiment toward the economy in five years time, though, bounced 15.2%, reversing the 16.5% fall in the previous month.

In our view, the heaviest weight on consumer sentiment will be increased anxiety about job security. Leading indicators of employment, such as the ANZ job advertisement series and employment component of the NAB business survey, recently have collapsed (chart). We expect tomorrow’s labour force survey to show a 30,000 fall in employment in February and a rise in the unemployment rate from 4.8% to 5.2%.

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