Consumer sentiment plunges in April: Bill Evans

EXPERT OBSERVER

The Westpac-Melbourne Institute Index of Consumer Sentiment plunged 17.7% to 75.6 in April from 91.9 in March.

This is the single biggest monthly decline in the forty seven year history of the survey, taking the Index beyond GFC lows to levels only seen during the deep recessions of the early 1990s (64.6) and early 1980s (75.5).

However, it is pertinent to note that the lows in previous recessions were reached after one to two years of continuous deterioration compared to the one month collapse we have seen here. Certainly we cannot rule out the Index dropping below the historic low of 64.6 we saw in November 1990.

The details of the survey which are discussed below are all very disturbing and reflect the large shocks to jobs and spending. However the most surprising message is the collapse in confidence in the housing market.

The survey comes after an extremely turbulent month in which the Coronavirus outbreak has evolved from serious concern to full-blown pandemic. Confirmed cases globally have soared from around one hundred thousand at the time of the last survey to nearly two million currently. In Australia, the number of cases has surged from just 76 a month ago to around 6,500.

Australian governments have instituted widespread shutdowns on movement and social activity that have effectively banned many forms of economic activity.

While the drop in confidence this month is severe, it could well have been worse. Despite the bleak and threatening backdrop, Australia’s pandemic experience to date has been much less debilitating than that of the hardest hit areas abroad.

The number of cases is high but has not overwhelmed Australia’s health system, with recent evidence showing a clear slowing in new cases that indicates policy measures are working to contain the spread.

These developments give some support to our view that the Australian economy will lift in the December quarter following three consecutive quarters of economic contraction.

We have also seen a swift and effective response from governments, highlighted by the Federal government’s $130 billion JobKeeper Payment scheme.

Westpac has estimated that without the Payment the unemployment rate would have soared to 17% by the end of June compared to a peak of 9% with the Payment scheme.

Note that previous recessions saw the unemployment rate peak at 11.2% (early 1990s) and 10.4% (early 1980s).

All five component sub-indexes fell in April. By far the biggest falls were in the near term outlook for the economy and in attitudes towards spending – reflecting the immediate effects of the shut-down.

The ‘economy, next 12 months’ sub-index recorded a spectacular 31% drop (the biggest monthly fall on record), taking it to 53.7. That compares to a low of 53.2 during the GFC and lows during previous recessions of 34.2 (early 1990s) and 42.1 (early 1980s).

Bill Evans is the Chief Economist at Westpac Banking Corporation