Daily Commentary BY THE CURVE TEAM –

Domestic Data Undermines RBA and Government Forecasts

17th of May, 2018

The threat to the outlook for the Australian economy was laid bare yesterday. We saw a number of data releases that shared the same message, the consumer is under the pump and it doesn’t look like getting any easier for households any time soon.

The latest consumer sentiment survey still saw optimists outnumber pessimist in May but the margin narrowed with the index slipping 0.6% to 101.8. The survey period straddled last weeks budget announcement which saw a positive skew to those surveyed after Tuesday’s budget release.

Despite the positive take on the budget, there was still a clear message from the subcomponents of the survey. The current conditions index fell 2.6% and within that, family finances compared to a year ago slumped 6.5%. Finances for the year ahead failed to bounce back after last months 5.8% fall and was only up 0.5%.

Adding to the consumers woes was the latest wage report which actually showed private sector wages growth slowed in the first quarter. The annual rate of wages growth seems anchored at around 2% and is showing no signs of life at present. With the unemployment rate sticky around 5.5% and not expected to fall materially over the medium term, both the RBA and Treasury’s forecasts are looking increasingly unrealistic.

Finally the pressure on the consumer is likely to be clearly evident in the next retail sales release for April. Yesterday NAB released its measure of “cashless retail sales” which covers around 2 million personal transactions through its network each day. After retail sales were weak across the board last month with food sales the only thing keeping overall sales positive, the NAB data suggest retail weakened further in April.

With the overhang of debt built up on the back of an extended run of low wages set to weigh on consumers for some time and no sign of wage growth on the horizon, the Australian economy, and thus interest rate, are likely to remain low for longer than offical forecasts from the RBA and Treasury suggest.

David Flanagan

Director - Interest Rate Markets