Daily Commentary BY THE CURVE TEAM –

Consumer Confidence Improves, Wage Growth Fades

14th of May, 2020

Consumer confidence walks back from the precipice as wage growth wilts ahead of Covid-19.

The latest monthly consumer sentiment report showed that consumer confidence picked up from the lows seen in late March/early April when containment measures were at their peak. The survey took place at the beginning of the month when talk of rolling back containment measures was gathering pace.

Confidence was up almost across the board with nearly every components seeing a substantial bounce from the lows seen in the April survey. The only area that didn’t see much of an improvement was consumer expectations for house prices which barely moved after the index fell 50% last month.

Overall sentiment is still weak with the index at 88.1 which indicates pessimists still outweigh optimists. However the bounce is an encouraging sign and could be sustained if the rollback of containment measures goes smoothly and we avoid any further ‘second wave’ of outbreaks.

One thing consumers will have to deal with as the economy opens back up is slower wage growth. The latest data showed that wage growth slowed in the first quarter before the economic slowdown really got underway. The RBA forecasts point to further weakness ahead. With the unemployment rate expected to remain elevated for some time, the enduring slack in the labour force will mean there is little in the way of upside wage pressures for some time.

We will get an update on the state of the labour force today when the April figures are released by the ABS. The market is expecting total job losses of 575,000 for the month, taking the unemployment rate up to 8.2%. With government policies limiting the number of people counted as unemployed, it could be months until we know what the true state of the labour market is.

David Flanagan

Director - Interest Rate Markets