Buoyant consumer confidence indicators demonstrate the importance of fiscal stimulus to the ongoing economic recovery

The monthly Westpac-Melbourne Institute survey continues to demonstrate a strong rebound in consumer confidence, rising in March to levels back to around its December 2020 highs after a two-month lull in the wake of minor COVID-19 outbreaks across various parts of the country.

Consumer confidence remains well above its pre-COVID average, a remarkable feat given that the country is not far removed from our first recession in almost three decades – and especially considering that the health and economic effects of the pandemic are ongoing. These numbers firmly demonstrate the importance of the federal government’s stimulus packages to supporting confidence, and consequently to the ongoing economic recovery.

While monetary stimulus has had an impact, there’s no denying the central role that federal government support programs, such as JobKeeper have played in holding up incomes and keeping people in work.

Australia has had to lean heavily on fiscal stimulus through the pandemic, and to a certain extent it has been the missing ingredient in our policy mix for a number of years. However, the scale of what we’ve seen over the past twelve months would have shocked even some of the most vocal proponents of fiscal intervention prior to the crisis.

Fiscal stimulus has also had different focus during COVID-19 than its pre-crisis proponents would have envisioned, centred around compensating households and businesses for the short-term, rather than longer-term policy changes or reform.

The ongoing effect over the past year has been to maintain confidence amongst consumers, businesses and within the markets, whilst supporting incomes and consequently consumption. Of slight concern is that household spending growth is still recovering much more quickly than business investment, which will need to increase more sharply in order to boost productivity growth.

Nevertheless, consistently high consumer and business¹ confidence headline confidence indicators show that the stimulus is having the desired effect, and fall in line with our expectations of a continuing robust recovery in Australia this year, with GDP set to rise by 4.8% in 2021 after a fall of 2.4% in 2020.

Savers turn away from property and loan repayments
Every quarter, the survey also asks its respondents a series of questions about the “wisest place for savings”. In the February instalment, traditional safe havens, such as bank deposits and “paying down debt” dominated responses, as they have done for most of the past decade. Nonetheless, the respondents’ choice to “paying down debt” is declining in popularity, down from its 2016-19 range of between 20-25%.

This demonstrates that the focus on paying down loan balances that have been adopted by many Australian households through the start of the pandemic has eased along with household debt burdens. Total balances for personal credit cards, for example, have declined by more than 20% since January 2020.²

Despite rising house prices, real estate continued to slide, with only 9.3% of consumers nominating it as the wisest place for savings – the third lowest result in the nearly 50 years since that the question has been asked.

Broader consumer sentiment towards the housing market also eased slightly in March, with the “time to buy a dwelling index” - which tends to be a leading indicator of home price growth - declining by 3.6%. That said, consumer sentiment towards housing is still pointing upwards over the next 6-12 months, with slower growth likely after this time.

¹ National Australia Bank, Monthly business survey February 2021; https://business.nab.com.au/wp-content/uploads/2021/03/NAB-Monthly-Business-Survey-February-2021.pdf
² Reserve Bank of Australia, Payments Data - C1: Credit and Charge Cards – Seasonally Adjusted Series, January 2021; https://www.rba.gov.au/payments-and-infrastructure/resources/payments-data.html