Daily Commentary BY THE CURVE TEAM –

Second Wave Hits Confidence

13th of August, 2020

Consumer confidence fell sharply in July as Victoria stoked fears of a second wave spillover.

Consumer sentiment was down 9.5% in July, which leaves the index at 79.5. The sharp fall leaves the index just above the April low of 75.6. The fall was not isolated to Victoria. NSW sentiment was down 15.5% leaving the sentiment index lower than Victoria’s.

The index fall was led by economic conditions for the next 12 months falling 19.2% and unemployment expectations rising 14.6%. By contrast family finances vs a year ago was down only 0.4%.

Sharp falls in the index despite only minor falls in family finances vs a year ago emphasises how harmful uncertainty is. Despite consumers seeing only a minor hit to their current income, current uncertainty has dented their view for future income with Family Finances for the year ahead falling over 7%. For a robust recovery to occur consumers will need to be confident they will have a job, which will lead to spending. While uncertainty around the economy, and by extension employment exists, the economic rebound can only be so high.

Wage growth data out yesterday did little to suggest a robust recovery is imminent. Wages were up only 0.2% for the June quarter, which reflects the peak of the Covid-19 first wave. It takes the annual growth rate to 1.8%, the lowest since the data series began.

Slow wage growth will only further dampen consumer confidence and add to uncertainty in the economy. The only respite in the release was that public sector wages were up 0.6% for the quarter and the wage falls were primarily from highly paid employees, who have a lower marginal propensity to consume.

Labour force data is released today. Unemployment is expected to rise from 7.4% to 7.8% as people return to the labour force. The data will be closely monitored, especially by the government, who have already had to make amendments to JobKeeper and JobSeeker payments following the second wave in Victoria.

Josh Stewart

Client Relationship Manager