The latest Westpac-Melbourne Institute Leading Index of Economic Activity has provided further evidence that Australia is in the midst of a moderate economic slowdown.
The annualised growth rate of the Index, which normally indicates the likely pace of activity six to nine months out, was 2.7% in April, below its long-term trend of 3.3%.
The current pace of economic growth, measured by the Coincident Index, came in at 4.6%, ahead of its long-term trend of 3.7%.
Westpac senior economist Justin Mccarthy says that while the decline in the annualised growth rate of the Leading Index in the second half of 2003 pointed to a slowdown in economic activity in the first half of 2004, the Index appears to have troughed at a relatively high rate of growth of 2.3% in October.
"This is much higher than the previous two cyclical troughs of 0.1% in August 2002 and -3.6% in September 2000, the latter foreshadowing the post-GST slowdown," he says.
McCarthy says the current growth rate of 2.7% suggests economic activity will pick up modestly from late 2004, albeit at a rate still below trend.
"The level of the [Leading Index] rose by 1.7 points or 0.8% in April and the annualised growth rate accelerated from 2.4% to 2.7%," he says.
"Of the monthly components, two rose and two fell in April. Dwelling approvals climbed 1.5% and the real money supply rose 0.7%, while the usually volatile non-residential building approvals edged down fractionally and the share price index fell 0.4%.
"The weak national accounts figure for the March quarter resulted in downward revisions to previous growth rates of the Index."
Additionally, a separate survey released this week shows consumers remain upbeat, with 51% of households confident about their financial prospects for the next 12 months.
Steven Shepherd, co-author of the Sensis Consumer Report, which surveyed 1,500 people between mid-April and early May, found perceptions of the economy are high, with 75% of householders believing the economy is either standing still or growing.
The Sensis chief economist says 67% of householders are expecting a similar or better economic situation in the year ahead.
"Twenty-two percent of households believe the economy is in a growth phase. This contrasts noticeably with small business sentiment, with 35% of business proprietors believing the economy is in a growth phase," he says.
This confidence is forecast to translate into increased household spending over the coming year.
Some 37% of households are expecting an increase in groceries and bills (29% by singles, 44% by families with children).
Dining out, fast food or home deliveries is the only category to record a decline in likely expenditure (-4%).
"Ten percent of families with children expected a decline in the dining out category, while 4% of singles indicated an increase in that expenditure," Shepherd says.
One in five households expect housing costs (mortgage or rent) to increase in the next 12 months.
"Given the current increases in the price of fuel, it is not surprising 26% of households predict an increase in transport costs," he says.
Transport is the category that singles (30%) predict will most likely increase in the next 12 months.
With the Reserve Bank board scheduled to meet on July 6, Westpac believes the Bank is comfortable with the current stance on monetary policy.