Business confident but consumers not

13 April 2016

Earlier this week NAB released its business conditions and confidence survey which sent bond yields higher on the back of business conditions being at an 8 year high. Memories of the financial markets turmoil earlier this year may be fading but the business confidence is not extending to consumers.

The latest Westpac Melbourne Institute consumer sentiment survey was described by Westpac’s chief economist Bill Evan as “disappointing” after the index came in below 100 for the second consecutive month. Readings below 100 indicate the number of pessimists outweigh the number of optimists. Given the long term average reading is 101.30, readings at lower levels indicate Australian consumers have lost confidence, which in turn may lead to reduced spending and employment opportunities in the domestic economy. AMP Capital’s Shane Oliver said this latest survey keeps an “RBA rate cut alive.”

Four of the five components of the index fell in April and the only component to rise, the ‘time to buy a major household item’ component, rose just 1%. Mr Evans said international news, the recent fall in the Australian share market and media coverage of China’s economy were probably behind consumers’ unease and he noted how sentiment towards housing had fallen ”sharply”.

WBC MI consumer sentiment chart March