Australians are having a tough time swallowing Joe Hockey’s budget medicine, and it doesn’t look like they’ll acquire the taste for it anytime soon.
Two separate surveys show that consumer confidence remains in the doldrums, with households worrying about the impact of the May budget’s spending cuts on their finances.
Despite the government’s repeated attempts to convince people of the need for widespread cuts, consumers aren’t happy about them.
“The consumer response to the federal budget is quite clear – they don’t like it and confidence around family finances has fallen as a result,” Commonwealth Bank economist Gareth Aird said.
The consumer response to the federal budget is quite clear – they don’t like it.
The monthly Westpac-Melbourne Institute Index of Consumer Sentiment rose by just 0.2 per cent in June, but remains stuck around two-year lows.
The index plunged seven per cent in May after the budget.
Meanwhile, the latest ANZ-Roy Morgan consumer confidence index was steady for a second week, but it too is down 14 points from mid-April.
Mr Aird said if it wasn’t for the harsh budget measures, the small fall in the unemployment rate at the beginning of 2014 would normally have lifted consumer sentiment.
With consumers feeling gloomy, retailers are braced for a drop in sales.
The dive in consumer confidence combined with the warmer-than-usual autumn temperatures could spell trouble for those selling clothes and household goods.
Discount chain The Reject Shop and the company behind Bonds clothing, Pacific Brands, issued profit warnings this week, largely blaming the budget and warm weather for hurting sales.
The Westpac index revealed the number of people feeling positive about their family finances fell 5.4 per cent in June.
And while there was a five per cent rise in how many felt upbeat about their household finances in the year ahead, the result was off a 23 per cent slump in May and was the second lowest reading since Australia’s last recession in 1991.
One thing people did feel good about was buying property, with the result bouncing back from substantial declines in the previous three months.
Westpac senior economist Matthew Hassan said the responses about the time to buy were more about market conditions rather than actual purchase intentions.
“Whether interest rates are low or affordability is good or bad and what expectations they have about price gains,” he said.
“You can have positive assessments on the time to buy that don’t necessarily translate in a pickup in activity if people are worried about their finances or job losses.”
Mr Hassan said it could take a while for consumers to recover from their current gloom.
Initial responses to a budget can sometimes be an overreaction, one which reverses in following months, he said.
In the meantime, many economists believe there is little chance of the Reserve Bank lifting interest rates this year.