The chances of an interest rate fall have moved closer with the news that Australian consumer confidence continues to fall in synch with business confidence.
In fact the key confidence tester, the Westpac-Melbourne Institute survey showed consumer confidence at a 15 year low.
If this situation continues we will escape the current angst about inflation and relatively high interest rates, without too much collateral damage.
Tuesday the National Australia Bank’s survey of business showed both confidence and business conditions falling to six and seven year lows, thanks to the volatility in financial markets, the impact of the US recession; but especially the anti-inflation campaign and higher interest rates from the Reserve Bank.
Yesterday both the Westpac/Melbourne Institute and the latest Roy Morgan poll both showed that consumer confidence continued to fall in April.
The news in Australia about business confidence falling was matched Tuesday in New Zealand by a survey there of business confidence levels, which showed a sharp slump, across the board, as well. Kiwi consumers are also glum.
The Westpac/Melbourne Institute survey showed confidence this month among local consumers falling to the lowest since 1993.
The survey showed the sentiment index dropped for a fourth month in a row, falling 1.3 from March to 87.4.
(The survey is pessimistic when their number exceeds optimists.)
Westpac chief economist, Bill Evans reckons the survey results shows just how concerned Australians are with the current economic environment.
With retail sales now down for three to four months in a row, building approvals sluggish and trending lower and signs the boom like conditions in even Queensland and Western Australia are getting tired, it’s no wonder the Reserve Bank’s campaign has struck fertile ground so quickly.
Later today we will find out what happened to employment last month when the latest labour force numbers are released.
The sharp fall in sentiment and expectations emphasises the belief by some economists (such as Dr Shane Oliver of the AMP) that the RBA may have made one rise too many.
The confidence index fell to the lowest since June 1993, when unemployment was close to a record high of 10.9%. Figures out tomorrow for March unemployment are likely to confirm the rate is around 4%-4.2%.
The survey was conducted between March 31 and April 6 and included the RBA meeting on April 1 which left rates unchanged, and Governor Glenn Stevens public appearance before a parliamentary committee on April 4.
Using different methodology, Roy Morgan Research has shown that Australian consumer confidence has fallen 15 points since January and Australians are becoming more pessimistic about the outlook, but not as worried as US consumers.
In Australia the ABC News Index shows we are still on the whole positive (but falling): in the US the mood is overwhelmingly negative and falling.
In a press release Roy Morgan research said that "using the ABC News Consumer Confidence Index Australian confidence has dropped significantly in the past two months as the global credit crunch and the well-documented dangers confronting the local economy have seen concerns about the local economy mount".
Roy Morgan said that using the ABC news Index, Australian confidence was now 12, down 15 points since January 30/31. "On the same measure Consumer Confidence in America is now minus 34, down 7 points from minus 27 in late January)."
The Westpac survey shows that confidence is now 24% below where it was a year ago.
Westpac chief economist Bill Evans said consumer sentiment failed to recover in April despite the Reserve Bank of Australia (RBA) keeping interest rates on hold at 7.25%.
"With the Reserve Bank not raising interest rates since the last survey it is reasonable to have expected some modest recovery in the index this month," Mr Evans said in a statement yesterday.
"However this further fall emphasises just how concerned households must be with the current economic environment."
Mr Evans said mortgage rate increases independent of the RBA decision, as well as higher fuel prices, would have "unsettled some households".
Three of the five components of the index fell in April, with the largest recorded fall a 12.7% drop in sentiment towards buying a major household item.
The category has slumped 45.8% over the past 12 months.
Those who were optimistic about economic conditions over the next 12 months fell 6.4%.
