Consumer sentiment dropped in May for the second month in a row and by the biggest amount since October 2008 when the credit crunch and recession were intensifying.
The catalyst this time, the third interest rate rise in a row this year from the Reserve Bank and the worries about Europe and sharp market falls, which continued today with our market hitting eight month lows.
The Westpac-Melbourne Institute consumer sentiment index for May fell 7% to 108 points.
The survey was conducted last week after the federal budget and a week after the Reserve Bank boosted rates to 4.50%, the sixth rate rise since last October.
So it’s no wonder retailers are feeling the brunt of the slide in confidence.
"This result indicates that the response to the Budget was negative on balance but we expect that the most important factor causing such a large fall in the headline index was the rate hike," Westpac chief economist, Bill Evans, said in a statement yesterday.
51% of respondents said the federal budget would have little impact, while 27% said their finances would worsen as a result of the budget, 11% said their finances would improve and 10% didn’t said they know.
The gathering re-emergence of global economic nervousness also weighed on respondents with the sub index assessing the economic outlook for the next 12 months falling 17.3% while the five year outlook fell 10.6% as the market and the dollar fell.
And for all the claims that the ACTU’s request for a $27 a week wage rise for our lowest paid workers will ruin business and cause a wages blow out, the real story is that it won’t.
Wages are not running amok.
In fact the Australian Bureau of Statistics Labour Price Index for the March quarter showed a rise of just 0.7%, the fifth consecutive quarter where the rise has been less than 1.0%.
The Private sector wage price index rose by 0.6% compared to 1.1% for the Public sector.
For the year, the wage price index rose 2.9%, according to the ABS.
The big driver was again public sector wages, where the index rose 4.2% over the year, against a 2.5% increase for the private sector.
As in the December quarter, the ABS said the difference between public and private sector wages growth was the largest since the series started.
The ABS also said that merchandise imports rose $34 million in April to $17.736 billion, seasonally adjusted.
In original, unadjusted, merchandise imports fell 7%, or $1.207 billion, to $16.818 billion, from a downwardly revised $18.025 billion in March.
Imports of mineral fuels, lubricants and related materials rose to $2.566 billion in April from $2.393 billion a month earlier, while imports of machinery and transport equipment fell to $6.542 billion, from $7.202 billion.
