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The federal budget has failed to fire up consumers' flagging spirits with confidence slipping in its immediate aftermath.
Key points:
- Consumers sunk deeper into pessimism in May
- Only 7pc of said the budget would improve their financial situation, 33pc said things would be worse
- Housing sentiment slips to second lowest reading since 2008
The Westpac-Melbourne Institute's respected monthly survey of consumer confidence found a further deterioration of sentiment in its May survey, and a pronounced slip in a second round of interviews after the budget.
Consumer sentiment fell by 1.1 per cent, from 99 to 98, in an index where 100 represents an equal weighting of pessimism and optimism.
The survey was conducted from May 8-13, with two days of the survey pre-budget and four after Treasurer Scott Morrison's speech.
"The index for the pre-budge' period printed 98.1 and for the post-budget period it printed 97.9," Westpac's chief economist Bill Evans said.
Mr Evans said whilst the move was small, there were some significant moves within the survey.
"Respondents' confidence in housing and the outlook for house prices deteriorated sharply, while the assessment of the budget around the outlook for family finances was decidedly weaker," he said.
To the specific question, "What impact do you expect the budget to have on your family finances over the next 12 months?", the survey showed 7 per cent said conditions would improve and 33 per cent said things would get worse.
The remainder indicated either "stay the same" (50 per cent), or "don't know" (10 per cent).
Housing market sentiment drops sharply
"The disappointment for the Government will be that despite its high expectations and its focus on spending — particularly in infrastructure, education and health — consumer sentiment remains "stuck" below the significant 100 level, indicating that pessimists continue to outnumber optimists," Mr Evans said.
Confidence in housing took a big hit in May, in the aftermath of a round of out-of-cycle home loan rate hikes and some tough talking from the likes of the Reserve Bank and the Australian Prudential Regulation Authority.
On the question whether now was a good time to buy a house, the survey dropped 6.5 per cent, the second-lowest reading since 2008 when house prices were falling and the RBA was raising rates.
The House Price Expectations Index tumbled almost 9 per cent with big falls concentrated in New South Wales, Queensland and Western Australia.
The only positive sentiment detected was a general feeling that employment prospects were picking up.
"However, with a flat response to the budget, respondents remaining concerned about their finances and no signs of any improvement in wages prospects, the risks of weak household spending feeding back onto employment and investment will remain a concern for policy makers," Mr Evans said.
He said the pessimistic view on consumer spending was likely to see the RBA leave rates on hold for the rest of the year as well as 2018, despite markets pricing in future rate hikes.
First posted