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20 May 2015
Australia's May consumer sentiment surges.- Westpac
FXStreet (Bali) - The Westpac–Melbourne Institute Index of Consumer Sentiment rose by 6.4% in May from 96.2 in April to 102.4 in May, a very strong result in words of Bill Evans, Chief Economist at Westpac.
Main findings - Westpac
The survey was conducted over the period 11 – 16 May. The Reserve Bank announced a 0.25% cut in its cash rate on May 5 and the Federal Budget was announced on the evening of May 12. A number of initiatives in the Budget had been signalled by the government prior to its official announcement.
This is a very strong result. It is the first time since February this year that the Index has been above 100, the point above which optimists outnumber pessimists. It is the highest level of the Index since January last year.
The boost to confidence was apparent in all major states except Western Australia where confidence actually fell by a concerning 7.7%.
Clearly, the two driving forces behind this boost have been the Federal Budget and the interest rate cut which the Reserve Bank delivered in the first week in May.
We have a separate question in this survey which confirms the significance of the Federal Budget. The question specifically asks about the expected impact of the Federal Budget on family finances over the next 12 months. We have asked this question for the last six Budgets. With a net balance of minus 22.5 the score associated with the 2015 Budget is the highest since 2010. That score contrasts with the 2014 Budget of minus 56.1.
In recent times the Index has, typically, fallen in May (down in six of the last 10 years) with the Budget usually the key explanation. The surge in the Index this year represents the first time we have had a strong result in May since 2007.
The 6.4% lift in the Index is comparable with the boost to confidence from the generous budgets of the Howard/ Costello era where the Index surged by 7.5% (2007); 8.1% (2005) and 5.3% (2001).
Whilst undoubtedly positive the impact of the rate cut is likely to have been dominated by the response to the Budget. For example, the confidence of those respondents who hold a mortgage increased by a solid 4.8% although that rise was somewhat less than the overall lift for all respondents of 6.4%.
It was also encouraging that the Westpac Melbourne Institute Index of Unemployment Expectations fell by 5.8% to 147.3. (A lower read indicates more confidence around the employment outlook). The Index is now 3.2% below its average read over the last year but it is still pointing to fragile conditions in the labour market. For instance, this fall has only really largely offset the sharp increase we saw last month.
The finance and economic outlook components of the Index were strong. “Family finances vs a year ago” improved by 5.8%; “Family finances over the next 12 months” lifted by 2.2%. The outlooks for economic conditions over the next 12 months (up 9.2%) and next five years (up 20.2%) were both encouraging.
Surprisingly, the component “whether now is a good time to buy a major household item” fell by 1.0%. Whereas the overall Index has printed its highest level since January last year this component of the Index is14% below its January level.
Confidence in housing recovered somewhat. The Index “Whether now is a good time to purchase a dwelling” increased by 5.0%. The interest rate cut would have been a key factor in this regard. However, the Index is still 9.4% below its level in February following the previous rate cut.
Main findings - Westpac
The survey was conducted over the period 11 – 16 May. The Reserve Bank announced a 0.25% cut in its cash rate on May 5 and the Federal Budget was announced on the evening of May 12. A number of initiatives in the Budget had been signalled by the government prior to its official announcement.
This is a very strong result. It is the first time since February this year that the Index has been above 100, the point above which optimists outnumber pessimists. It is the highest level of the Index since January last year.
The boost to confidence was apparent in all major states except Western Australia where confidence actually fell by a concerning 7.7%.
Clearly, the two driving forces behind this boost have been the Federal Budget and the interest rate cut which the Reserve Bank delivered in the first week in May.
We have a separate question in this survey which confirms the significance of the Federal Budget. The question specifically asks about the expected impact of the Federal Budget on family finances over the next 12 months. We have asked this question for the last six Budgets. With a net balance of minus 22.5 the score associated with the 2015 Budget is the highest since 2010. That score contrasts with the 2014 Budget of minus 56.1.
In recent times the Index has, typically, fallen in May (down in six of the last 10 years) with the Budget usually the key explanation. The surge in the Index this year represents the first time we have had a strong result in May since 2007.
The 6.4% lift in the Index is comparable with the boost to confidence from the generous budgets of the Howard/ Costello era where the Index surged by 7.5% (2007); 8.1% (2005) and 5.3% (2001).
Whilst undoubtedly positive the impact of the rate cut is likely to have been dominated by the response to the Budget. For example, the confidence of those respondents who hold a mortgage increased by a solid 4.8% although that rise was somewhat less than the overall lift for all respondents of 6.4%.
It was also encouraging that the Westpac Melbourne Institute Index of Unemployment Expectations fell by 5.8% to 147.3. (A lower read indicates more confidence around the employment outlook). The Index is now 3.2% below its average read over the last year but it is still pointing to fragile conditions in the labour market. For instance, this fall has only really largely offset the sharp increase we saw last month.
The finance and economic outlook components of the Index were strong. “Family finances vs a year ago” improved by 5.8%; “Family finances over the next 12 months” lifted by 2.2%. The outlooks for economic conditions over the next 12 months (up 9.2%) and next five years (up 20.2%) were both encouraging.
Surprisingly, the component “whether now is a good time to buy a major household item” fell by 1.0%. Whereas the overall Index has printed its highest level since January last year this component of the Index is14% below its January level.
Confidence in housing recovered somewhat. The Index “Whether now is a good time to purchase a dwelling” increased by 5.0%. The interest rate cut would have been a key factor in this regard. However, the Index is still 9.4% below its level in February following the previous rate cut.