Unfortunately the latest consumer confidence figures from the Westpac – Melbourne Institute Survey of Consumer Sentiment have declared that the honeymoon is ending.
The Consumer Sentiment Index is an average of five component indexes which reflect consumers’ evaluations of their household financial situation over the past year and the coming year, anticipated economic conditions over the coming year and the next five years, and buying conditions for major household items.
Consumers are also surveyed about their views on buying conditions for cars and dwellings, the wisest place for savings, and economic news recall.
Westpac’s Chief Economist Bill Evans commented, “The Index is back to around its average reading over the last six months. Following the change of leadership of the Federal Government in September the Index lifted by 8.3% over the subsequent two months. It has broadly held those gains with today’s reading off that high in November by 2.5% although we are now slightly back in the region where pessimists outnumber optimists.”
Why Australian consumers felt more confident post-leadership change
The post-Abbott boost to consumer confidence came across many different sectors:
- Optimism for the economy over the next year showed a 25.8% increase. That was the second-largest one week gain since 2008.
- Optimism for the economy over the next five years showed a 13.4% increase.
- Optimism over our individual financial position now compared to a year ago showed a modest rise.
At the time, the ANZ Chief Economist Warren Hogan commented on the report, “The sharp jump in ANZ-Roy Morgan Australian Consumer Confidence last week is a clear vote of confidence in the new Prime Minister, Malcolm Turnbull.”
Vision needed to stay at the top
At the time of the coup, the expectations of Australians were riding high – not unlike when Abbott came to power in 2013, Mr Hogan pointed out – and the risk of disappointment in the early days can be significant. To prevent a drop-off in the “bounce” effect, Mr Hogan suggested that the leadership would need to deliver a reform strategy for the medium-term within its first 100 days in office.
“A clear economic strategy is critical,” Mr Hogan said.
According to the Westpac Melbourne Institute Index of Consumer Sentiment, we’re more likely to be focused on the negative right now.
“The market volatility and unfavourable media coverage on property markets appears to have triggered a reassessment of risk preferences,” said Westpac’s Chief Economist Bill Evans.
“When we asked consumers about the ‘wisest place for savings’ there was a much higher proportion nominating ‘pay down debt’ – 24.4% in March compared to 17.8% in December – with this month’s reading the highest since December 2011( 26.6%) when the European Financial Crisis was in full swing. This move to more risk averse preferences also saw a 4.5 percentage point
increase in the proportion of respondents who favoured fixed interest investments, including bank deposits with significant reductions in the proportion nominating real estate (down to 14.7% from 23.4% in December ) and shares (down from 9.9% in December to 7.6% in March).”
What consumer confidence can mean for Australia
Consumer confidence is a term used to measure how optimism people are about the state of their economy and the future of their individual finances.
When consumer confidence is low, people typically try to save or pay off debts, because they are not optimistic about the economy or their own individual finances improving.
When consumer confidence is high, people typically spend rather than save – so watch your credit card bill! Of course, there are some who tend to be “savers” no matter what the economic climate, but for the rest of us, it’s important to make sure we keep our finances stable during times of change.