Dive, dive, dive!

The Federal Budget has, as expected, had an affect on Consumer Confidence (sentiment). However the hit is far greater than was anticipated.

One measure has consumer confidence declining by 14% in the latest four week period. 

The Westpac-Melbourne Institute measure of Consumer Confidence also fell. Westpac's Chief Economist, Bill Evans, commented, "The sharp fall in the Index is clearly indicating an unfavourable response to the recent Federal Budget. This puts the Index at its lowest level since August 2011, before the Reserve Bank began its recent rate cut cycle."

The diagram shows the Westpac-Melbourne Institute data, issued today. 

This is important because as Consumers Expenditure is the largest component of Aggregate Demand this is likely to affect the real economy. When confidence falls households reduce spending (raise saving) and this knocks on to the real economy as the AD curve shifts to the left.

This is an early indication of confidence and it will probably rebound when people get over the shock of the Budget. However the overall effect will still be to depress AD for the rest of the year with the inevitable consequences for output and employment and, of course, business confidence.

The Sydney Morning Herald reports the ANZ figures here

Westpac's comments on the data here