Consumer sentiment roars back despite news of recession: Bill Evans

EXPERT OBSERVER

The Westpac-Melbourne Institute Index of Consumer Sentiment surged by 18% from 79.5 in August to 93.8 in September.

We suspected last month’s 9.5% collapse in the Index was an over-reaction but this month’s 18% rebound is a pleasant surprise nonetheless. It comes despite official confirmation in the survey week that Australia had experienced its first recession since 1992. Clearly this was ‘old news’ with respondents more focussed on the future.

The rebound means the Index is now just 1.6% below the average over the six months prior to the emergence of COVID-19 in March.

Recall that the sharp fall in August was in reaction to the deteriorating virus situation in Victoria which had seen the state government announce hard lockdown measures at the start of the month including ‘Stage 4’ restrictions for Melbourne. But the more concerning message in August was the weakness in other states – in particular, the 15.5% slump in confidence in NSW.

The state had seen persistent clusters of virus cases and combined with Victoria’s problems, sparked concerns of a wider ‘second wave’ outbreak. To a lesser extent these fears were also apparent in Queensland where confidence tumbled 8.1%.

However, Victoria’s new cases slowed markedly once lockdown measures were in place and we saw no evidence of second waves in either NSW or Queensland.

It should be noted that the September survey was completed before the announcement by Victorian State Premier Andrews on September 6 of a slower than generally expected move towards reopening. The disappointment with that announcement could have been expected to dampen the 14.9% surge in confidence in Victoria, although frustration at the extended lockdown measures would likely still be more than outweighed by the clear success they have had in containing the virus.

We do not expect the Premier’s announcement would have had any impact on the positive results in other states.

BILL EVANS is the Chief Economist at Westpac