Consumers, tenants and mortgage holders lose confidence in August despite favourable economic factors: Westpac

Consumer sentiment fell in August despite interest rates remaining on hold and other “favourable” economic factors, according to the August reading of the Westpac–Melbourne Institute Index of Consumer Sentiment.

The overall index fell by 2.5% in August from 99.1 in July to 96.6, partially reversed a rise in the index of 3.7% in July and a smaller rise of 0.3% in June.

Westpac chief economist Bill Evans called the August reading a “disappointing result”, with the index in the "cautiously pessimistic range".

“This is the sixth consecutive month that the index has registered below 100, averaging 96.2.

“This is unusual. The only comparable periods since the recession of the early 1990s are in 2000–01 when the index printed an average of 96.5 over an eight-month period and in 2008–09, when it averaged 88 over a 16-month period.

“That most recent period coincided with the authorities responding with a very aggressive fiscal expansion. In the current period both federal and state governments are entering into substantial fiscal consolidations,” says Evans.

Commsec chief economist Craig James, said there were now "mixed messages on confidence and consumer sentiment"  following yesterday's data showed the weekly Roy Morgan consumer confidence rating at a 13-week high and up 2.1% in August.

"The Roy Morgan rating is up 5.1% on a year ago while the Westpac/Melbourne Institute was up 7.8% on a year ago. Bottom line is that consumer confidence is just OK at present," James says.

"The Reserve Bank will probably be a bit disappointed at the latest consumer confidence results. There are plenty of good reasons for Aussies to be encouraged by the state of their economy, but we are still seeing the glass as half-empty rather than half-full.

"CommSec expects the Reserve Bank to maintain its easing bias but it may not follow through with another rate cut until later in the year. Europe, the level of the Aussie dollar and the Chinese economic recovery are the key issues affecting interest rate decisions," says James.

In line with the overall drop in consumer sentiment recorded by Westpac, confidence among Westpac respondents who hold a mortgage fell by 3.9% from 98.8 to 94.9.

In the home-ownership category, tenants are the most optimistic with an index score of 100.4, but this reading fell from 110.4 reading in July.

Those who wholly own their own home scored 97.6, up from 95.1 in July.

The largest decrease of 6.3% was recorded by the component index reflecting family finances compared with a year ago.

This was followed by falls of 3.6% and 3.1%, respectively, in the component indices reflecting good or bad time to buy major household items and about economic conditions over the next 12 months.

Sentiment shifted the most among younger respondents, with decreases greater than 10% recorded by those aged between 18 and 24.

“There has been enough positive news around since the last survey, and generally over the last few months, to have sustained an upswing in consumer sentiment,” says Evans.

“News that retail spending was boosted in the first half of the year; unemployment remains low; the government has released $1.9 billion in fiscal compensation over the May–June period; the Reserve Bank had cut the overnight cash rate by 0.75% in May/June; and the President of the European Central Bank has been promising to "do whatever it takes" to save the euro has been unsuccessful in sustaining an upswing in sentiment.

“Indicative of a more positive global outlook the share market has risen by 2.9% and the Australian dollar has risen from around USD 1.02 to USD 1.05 since the survey in July, the latter also reflecting Australia’s attractive interest rate differential.”