The Westpac-Melbourne Institute Index of Consumer Sentiment rebounded 16.4% to 88.1 in May from the extremely weak 75.6 read in April.
Remarkably, consumer confidence is now back around pre-COVID levels, having recovered all of the extreme 20% drop seen when the pandemic exploded in March– April. Confidence has clearly been buoyed by Australia’s continued success in bringing the Coronavirus under control, which has in turn allowed for a further easing in social restrictions over the last month.
The Index is now only 2% below the average in the preceding September to February period. Note that sentiment was already on the weak side prior to the COVID shock with the Index through this earlier period showing a persistent excess of pessimists over optimists. With the unemployment rate set to remain elevated; extensive restrictions staying in place and the economy facing permanent structural change it would be surprising if the recent upward momentum continues and is able to sustain a stable level of confidence which is above that previous period.
While the monthly gains are impressive, the Index is still relatively weak by historical standards – in pessimistic territory overall and down 7% on a year ago. The general picture is of continued intense pressure on family finances and concern about the near- term outlook for the economy but with firming optimism around prospects for finances in the year ahead and the economy’s medium term outlook.
All component indexes recorded gains in June but the largest improvements were around views on the economic outlook and ‘time to buy a major item’.
While consumers remain concerned about the economy’s near-term prospects and the news around employment they are much less concerned about the prospect of a further rise in unemployment. The Westpac-Melbourne Institute Unemployment Expectations Index fell a further 7% in June, following a 13.4% drop in May more than unwinding all of the 17.4% jump over March–April (recall that lower readings indicate that more consumers expect unemployment to fall in the year ahead). The impressive turnaround means the index is now at 127, slightly below its long run average of 130. Note that this is consistent with a stabilisation in unemployment around current levels over the next year rather than a decline back to preCOVID levels. Nevertheless, the easing in job loss fears is a key factor that will tend to see those still with jobs less restrained with their spending decisions. The complication around this reading is how those respondents whose employers are receiving JobKeeper payments feel about their job security.
Sentiment around housing showed a modest improvement in June, assessments around ‘time to buy’ consolidating on previous gains and price expectations showing a lift, albeit to still very weak levels.
The proportion favouring real estate dropped back to 9% from 13% in March – matching the record low set this time last year. With price expectations negative, investors look likely to stay away from Australia’s housing market near term. Unusually, more respondents nominated shares (11.4%) than real estate as preferred investment options.
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