During most of the period between 2014 and 2017 there was a divergence between consumer sentiment and business confidence in Australia. Some economists explained the difference by a lack of wage growth; low wage growth is good for business in keeping costs down and margins up but households’ propensity to spend is hampered. Other explanations, such as households’ debt levels and the threat of higher mortgage rates have also been put forward.
According to the latest Westpac-Melbourne Institute Consumer Sentiment Index, households’ levels of optimism slipped again as the Index dropped back from April’s reading of 102.4 to 101.8 in May. Any reading above 100 indicates the number of consumers who are optimistic is greater than the number of consumers who are pessimistic. The long-term average reading is just over 101.
The survey was held in the second week of May, a week which contained the Federal Budget. Westpac chief economist Bill Evans said half the survey had been conducted before the budget and half had been conducted afterwards. He had noticed a clear distinction between results of the two groups; households which had been surveyed after the budget were more optimistic.