Consumer Confidence Drops – interest rates will remain low

ANZ-Roy Morgan Consumer Confidence fell 1.2% to 112.1 last week, further retracing some of the Budget bounce.

Only yesterday the Reserve Bank governor Glenn Stevens  left open the possibility of a further interest rate cut because of our poorly performing economy and the latest drop in consumer confidence won’t do anything to stimulate the economy.

While the index is now 0.6% below its long run average, it remains around 10% above levels seen a year ago.

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The fall last week was broad-based.

Households’ views of ‘economic conditions over the next five years’ fell 6.7% while ‘economic conditions over the next twelve months’ fell 2.4%.

The economic conditions indices saw the largest boost following the release of the Budget, however much of the gains have now been reversed with the sub-index on economic conditions now only 2.2% above its pre-Budget levels.

Households’ views of their own finances have now fallen to levels prior to the Budget and the May interest rate cut.

The sub-index on ‘finances compared to a year ago’ fell 1.8% and ‘family finances in the next year’ fell 1.2% last week.

ANZ Chief Economist commented:

ANZ-Roy Morgan Consumer Confidence fell last week to levels just below long-run average. It’s disappointing to see the boost that consumer confidence saw around the time of the Budget start to be unwound.

As we have noted previously, the lift to confidence needs to be sustained to feed into stronger household spending.

Last week’s Q1 GDP report showed that growth in consumer spending remains soft, with weak growth in household incomes weighing on spending. April retail sales were also disappointing.

Ongoing soft growth in wages is likely to remain a constraint on spending, even with a lower saving rate. And if confidence proves unable to sustain the recent bounce, growth in consumer spending looks set to stay in the doldrums.”



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