The big spending federal budget has failed to sustain the recent strength of consumer confidence, a worry for both Treasurer Josh Frydenberg and retailers.
A Westpac-Melbourne Institute survey has found consumer confidence dropped 4.8 per cent in May.
“With that scale of stimulus measures the government might have expected a lift in sentiment following the announcement of the budget,” Westpac chief economist Bill Evans said.
“Instead there was no evidence of a reaction either way – sentiment amongst those surveyed pre-budget was almost identical to that amongst those surveyed after the announcement.”
Mr Evans said this may reflect the absence of major surprises with many initiatives leaked prior to budget night.
“Perhaps the budget would have been even better received if the government had announced some surprise positive initiatives on the night that were targeted at households,” he said.
Just one in five consumers expect this year’s budget will improve their finances over the next 12 months.
However, there has only been one more positive response in the 11 years the survey has asked a specific budget question.
That followed the equally big spending budget in 2020, with a survey showing just over one in four consumers expected to be better off.
The decline in confidence – a pointer to future retail spending – does follow a spike to the highest level since 2010 in April and an 11 per cent increase over the previous three months.
One area that probably disappointed respondents was the outlook for wages growth.
The budget forecasts wages only growing by 2.75 per cent by 2024/25 after either trailing or being flat to inflation before then.
Wednesday’s release of the wage price index for the March quarter – a key gauge used by the Reserve Bank and Treasury to measure wages growth – will underscore this disappointing outlook.
Economists expect it will show a rise of 0.5 per cent in the quarter, slightly smaller than the 0.6 per cent increase recorded three months earlier.
This will leave the annual rate at just 1.4 per cent, and far short of what the Reserve Bank wants to see to return inflation to some sort of normality.
The minutes of the RBA’s May 4 board meeting released on Tuesday reiterated the cash rate won’t rise until inflation is sustainably between two and three per cent, which will need wage growth of above three per cent.