Bill Evans, Chief Economist at Westpac, notes that the Westpac Melbourne Institute Index of Consumer Sentiment fell by 1.1% in May from 99.0 in April to 98.0 in May.

Key Quotes

“The survey was conducted over the period May 8 to 13. Hence two of the survey days were ‘pre Budget’ and four were ‘post Budget’. However there was virtually no impact from the Budget. The Index for the ‘pre Budget’ period printed 98.1 and for the ‘post Budget’ period it printed 97.9.”

“The components assessing the economic outlook improved over the month although deteriorated modestly post Budget. The ‘economic conditions, next 12 months’ sub-index fell from 96.5 (‘pre’) to 94.9 (‘post’) from 91.7 in April. The ‘economic conditions, next 5 years’ sub-index was steady over the Budget period (97 ‘pre’ and 96 ‘post’) but improved overall from the April print of 92.7.”

“The Reserve Bank Board next meets on June 6. Policy is firmly on hold as the Bank assesses developments particularly in the housing and labour markets. This survey is indicating that some heat may be coming out of the housing market as macro prudential policies and some Budget initiatives may be discouraging housing investors.”

“Evidence around the labour market in this survey is somewhat more encouraging. However, with a flat response to the Budget, respondents remaining concerned about their finances and no signs of any improvement in wages prospects, the risks of weak household spending feeding back onto employment and investment will remain a concern for policy makers.”

“Despite market pricing pointing firmly towards rate hikes we continue to expect that the Reserve Bank will keep rates on hold over the course of the remainder of 2017 and 2018.”