Daily Commentary BY THE CURVE TEAM –

Outlook Weighs on Consumer Sentiment

13th of June, 2019

As flagged by the deterioration in the weekly consumer sentiment pulse, the monthly consumer sentiment index slipped in June on negative signals for the outlook.

Consumer sentiment slipped a little in June according to the latest survey but managed to hold just above the key 100 level. Optimists now outweigh pessimists by the smallest of margins after the 0.6% decline took the index down to 100.7.

It seems that consumers saw the rate cut from the RBA as a sign that the economy is taking a turn for the worse, rather than focusing on the potential boost it provide to the economy. It wasn’t just the rate cut that was a poor signal for the outlook for the economy with the consumer sentiment report saying that:

“Responses over the survey week show a marked drop-off after the Reserve Bank’s official rate cut. Responses collected before the June 4 decision had a combined index read of 106.8. Those collected after had a combined read of 95.5, with daily results showing a further softening after the weak GDP report.”

Breaking down the numbers a little further and you can see exactly where consumers fears lie. The biggest declines for the month were see in Family Finances vs a Year Ago and Economic Conditions Over the Next 12 Months.

One key measure to keep an eye on was the Unemployment Expectations Index which jumped 5.1%. A higher read indicates more consumers expect unemployment to rise over the year ahead. Rising job uncertainty generally feeds back into a lower propensity to consumer, especially discretionary items.

The move in the unemployment expectations index is likely linked to the weak GDP outcome, lower expectations around growth for the year ahead and the uptick in the unemployment rate last month. That makes this months employment data due out today increasingly important.

Currently the market is expecting a slightly softer outcome of 16,000 in new jobs, down on the +25,000 outcomes seen in recent months. Despite the softer outcome, the unemployment rate is still expected to drift back down to 5.1% on the assumption the participation rate remains unchanged.

David Flanagan

Director - Interest Rate Markets