Consumer confidence remains below expectations

The Westpac-Melbourne Institute Index of Consumer Sentiment Consumer (released yesterday) shows consumer sentiment has recovered slightly but remains below expectations with households reluctant to spend in the light of lingering economic concern two months after an unpopular federal budget.

The Index showed a 1.9% increase, from 93.2 in June to 94.9 in July, and revealed continuing weakness in consumers’ labour market expectations and the five-year economic outlook.

Australian National Retailers Association CEO, Anna McPhee. said the survey showed uncertainty is hindering a recovery in consumer confidence as consumers remain pessimistic about the future, “Since the Federal Budget in May consumer confidence has stalled. Softer employment prospects and economic outlook continue to hold back significant improvements in sentiment.

“It is also likely the volatility of global financial markets and the falling Australian dollar would have contributed to October’s soft result.

“Indications this month that consumers are feeling slightly more confident about job security and employment prospects will assist incremental improvements in consumer sentiment over the long term.

“It’s pleasing to see improvements in forward looking indicators this month, such as ‘family finances vs a year ago’ (up 4.4%) and ‘family finances next 12 months’ (up 1.2%).

“Despite today’s static results, retailers will see the minor improvement of consumer sentiment – albeit in pessimistic territory – as an indication shoppers are beginning to feel more confident.

“It is important to note that retail sales are on a positive trajectory according to the ABS, and are continuing to track in the sustainable direction. Retailers are hopeful this sustainable upturn continues in order to meet the sector’s expectations to deliver six per cent year-on-year growth by the end of the year,” said Ms McPhee.

Westpac’s Chief Economist Bill Evans expects the budget fears to gradually fade over the course of 2014, resulting in an improvement in confidence as residential construction expands and household financial positions keep improving.

In the report, Mr Evans said, “Although we are observing this ongoing pessimism the result of this particular month is probably better than might have been expected given the violent moves in global financial markets that might have further unnerved respondents.

“Since the survey in September the Australian dollar has fallen by around 6% against the US dollar and the Australian share market has come down by around 6.5%.

“On the other hand households, who reacted negatively to the Commonwealth Government’s May Budget (the index fell by 6.8% in the wake of the budget) may have been encouraged by recent announcements that a number of budget initiatives have been set aside for the time being.”

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