The Westpac-Melbourne Institute survey of consumer confidence declined in May by the largest amount since October 2008, as three consecutive increases in the Reserve Bank’s overnight cash rate bite into household budgets.

The 7.0% fall to 108 index points was the largest since the worst of the global financial crisis, and the second consecutive decline in the reading. Surveyors were in the field following the government’s release of the 2010–2011 budget and the RBA’s most recent 25 basis point rate increase, taking the cash rate to 4.5%.

Bill Evans, noted chief economist with Westpac, said in a statement following the survey’s release that he believes “the most important factor causing such a large fall in the headline index was the rate hike.” He also notes “[t]his result indicates that the response to the budget was negative on balance.”

Giving credence to the poor consumer sentiment figures is the plight amongst some retailers. Clive Peeters shares have halted trading as the electronics outlet negotiates with bankers. In quarterly reports, Myer reported waning sales numbers and David Jones reported no increase in sales.

The details of the consumer confidence report show where household worries lie. Amongst those with a mortgage, confidence declined 8.1%, more than the average, and the reading on “time to buy a dwelling” fell 15.4% to 88.2 points, a figure 35.6% below the long-term average and 40% below August 2009.

A majority of respondents, 51%, didn’t believe the government budget would affect their finances substantially. However, 27% believed their finances would worsen and 10% weren’t certain. Only 11% believed their finances would improve.

The sub-index on economic outlook for the next twelve months decreased 17.3% and the five-year outlook by 10.6%. The outlook for household finances for the next twelve months decreased 3.6%.

Although the impact of the recent European debt crisis was not measured directly, the share price sub-index decreased 6.8% and the Australian dollar 4.2% in international currency markets.

Source: http://www.businessday.com.au/business/consumer-confidence-dives-most-since-gfc-20100519-vd7a.html