Daily Commentary BY THE CURVE TEAM –

Consumer Headwinds Build

18th of May, 2017

The Australian consumer faces stiffening headwinds according to the latest data. Yesterday’s wage data saw the annual pace of private wages growth move to a record low since data started being collected more than two decades ago. The data followed news that consumers are viewing the budget released last week to have a largely negative effect for their family finances for the year ahead.

Westpac’s consumer sentiment index for May only dipped slightly from April, masking some significant moves in the underlying sub-indices. Westpac asked consumers what impact they expected the budget to have on their family finances over the next year. One third of respondents indicated it would leave them worse off, with only 7% indicating it would improve their situation. The rest believe they will be unaffected or didn’t know.

The increased regulatory oversight on lending practices and negative media on the housing market also hit sentiment. The ‘time to buy a dwelling’ index and expectations over house prices were also hit heavily in the latest survey. This is an important development that warrants close watching given the link between housing, debt and consumption which I outlined yesterday.

Developments offshore overnight and the impact it is having on markets is unlikely to help boost sentiment either. It appears that the chickens are coming home to roost for President Trump over the Russian ‘things’ he keeps trying to distance himself from. He is now right in the firing line for impeachment and until this process is resolved, markets are likely to remain on the back foot.

David Flanagan

Director - Interest Rate Markets