Westpac consumer sentiment report out for April: All you need to know

Highlights

• Westpac Banking Corporation (ASX:WBC) has recently released its monthly consumer confidence report for April 2022.
• Consumer sentiment took a small hit in April, compared to a steep fall of 4.2% seen in March.
• The recently announced Federal budget provided some respite to consumers in April.

This morning, Westpac Banking Corporation (ASX:WBC) released its consumer sentiment report for April, discussing the impact of market developments on consumer confidence. The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 0.9% to 95.8 in April. In March, the value of this index stood at 96.6. The average value of the index six months before the pandemic was 95.3, surprisingly close to the current levels.

The relatively small decline in April follows the previous month’s sharp fall of 4.2% in the consumer sentiment index due to the Russia-Ukraine war. The decline in confidence somehow reduced in April after consumers obtained some level of positivity during the month.

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Let us understand what the data means for Australians and what it could bring in the future.

How was Australia’s consumer confidence in April?

Despite the modest fall in April, consumer confidence during the month was the lowest since September 2020, a time when COVID-related fears were at their peak. The April consumer confidence encompasses a set of varying factors that have led to the small drop.

Among all respondents, those with a mortgage saw confidence declining by 9.2% in April. The survey responses suggest that 70% of consumers expect interest rates to rise in the next 12 months. Meanwhile, there is a sharp uptick in the proportion of people expecting rates to rise by more than 1ppt.

The possibility of rising interest rates also helped push consumer sentiment higher as some individuals expect higher interest payments. However, inflation continues to bog down the liveliness of the markets as the ‘time to buy a major household item’ sub-index fell sharply by 5.3%. In fact, inflation-related uncertainty affected the results of all subgroups included in the research.

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Which factors drove Australian consumer sentiment?

In March 2022, consumer confidence took a hit due to geopolitics, floods, inflation, and interest rates.  Some effects of the previous month’s loss in confidence are still visible in April. However, the Federal budget has been the source of some positive reinforcement in April, leading to a much lower decline in confidence compared to March’s massive fall.

The budget announcement came a week prior to the April survey, contributing to the change visible in consumer sentiment. However, the proportion expecting to be worse off was larger than the proportion expecting a benefit, with a net balance of -7.2%. This is a typical response to the budget, seen even during pre-pandemic times.

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Another crucial impact of the Federal budget announcement was seen among the lower-income groups. The ‘cost of living’ measures included in the budget were well-received by the respondents. As a result, individuals falling in the 18-24 year old age group viewed the budget as a positive.

What to expect ahead?

For the near-term outlook, consumers’ views on the economy improved with the ‘economy, next 12 months’ sub-index showing a rise of 5.8% to 95.9. Additionally, the sub-index measuring the economic outlook for the next five years also rose by 1%.

Despite all uncertainties, the improved outlook for the near term can be attributed to the sheer strength seen in the labour market data. The unemployment rate in Australia is sitting at a record low of 4% and is expected to decline further, given the promising initiatives taken by the government to promote employment.

Most consumers expect prices to rise over the next 12 months for the property market. However, the fear of rising housing prices is still less widespread than before. The Westpac-Melbourne Institute House Price Expectations Index fell by 3.5% to 134.1. This translates into around half of the consumers expecting the prices to rise.

Westpac does not expect an interest rate rise to occur as early as May 2022. In light of the recent monetary policy meet, Westpac has revised its forecast for an interest rate hike from August to June. A series of rate hikes can be expected once the cycle begins.

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