Australian consumer confidence continues to fall in sync with business confidence, hastening the chances of a cut in interest rates.

Yesterday the National Australia Bank’s survey of business showed both confidence and business conditions falling to six and seven year lows, thanks to the volatility in financial markets, the impact of the US recession; but especially the anti-inflation campaign and rhetoric the Reserve Bank through lifting interest rates.

Today both the Westpac/Melbourne Institute and the latest Roy Morgan poll both showed a continuation of the decline in consumer confidence levels seen over the past couple of months.

The news in Australia about business confidence falling was matched yesterday in New Zealand by a survey there of business confidence levels, which showed a sharp slump, across the board, as well. Kiwi consumers are also glum.

Today the Westpac/Melbourne Institute survey showed confidence this month among Aussie consumers falling to the lowest since 1993. The survey showed the sentiment index dropped for a fourth month in a row, falling 1.3 from March to 87.4.

Westpac chief economist, Bill Evans believes the survey results shows just how concerned Australians are with the current economic environment. With retail sales now down for three to four months in a row, building approvals sluggish and trending lower and signs the boom like conditions in even Queensland and Western Australia are getting tired, it’s no wonder the Reserve Bank’s campaign has struck fertile ground so quickly.

The sharp fall in sentiment and expectations emphasises the belief by some economists (such as Dr Shane Oliver of the AMP) that the RBA may have made one rise too many. The confidence index fell to the lowest since June 1993, when unemployment was close to a record high of 10.9%. Figures out tomorrow for March unemployment are likely to confirm the rate is around 4% to 4.2%.

The survey was conducted between March 31 and April 6 and included the RBA meeting on April 1 which left rates unchanged, and Governor Glenn Stevens public appearance before a parliamentary committee on April 4. Using different methodology, Roy Morgan Research has shown that Australian consumer confidence has fallen 15 points since January and Australians are becoming more pessimistic about the outlook, but not as worried as US consumers.

In Australia the ABC News Index shows we are still on the whole positive (but falling): in the US the mood is overwhelmingly negative and falling.

In a press release today Roy Morgan research said that “using the ABC News Consumer Confidence Index Australian confidence has dropped significantly in the past two months as the global credit crunch and the well-documented dangers confronting the local economy have seen concerns about the local economy mount.”

Roy Morgan said that using the ABC news Index, Australian confidence was now 12, down 15 points since January 30/31. “On the same measure Consumer Confidence in America is now minus 34, down 7 points from minus 27 in late January).”

Peter Fray

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