Consumer sentiment declines to lowest point since house prices declined: Westpac

Consumer sentiment declines to lowest point since house prices declined: Westpac
Consumer sentiment declines to lowest point since house prices declined: Westpac

EXPERT OBSERVER

The ‘cautiously optimistic’ consumer mood that prevailed through 2018 has evaporated with sentiment beginning the new year with a slightly pessimistic view. At 99.6, the Index is below the 100 level, indicating that pessimists outnumber optimists, although only by a slim margin. This is the first time sub-100 reading from the survey since November 2017.

Confidence has come under pressure from a number of fronts including a continued slide in house prices; disappointing updates on Australia’s economic growth; ongoing concerns around global trade wars; and political uncertainty. Indeed, the continued optimism late last year was something of a surprise, implying the consumer mood was still getting considerable support from low interest rates, diminished fears of rate increases, a firm labour market, and at the margin, lower petrol prices. Other factors may also have weighed negative on sentiment in January including the Australian cricket team’s first domestic test series defeat to India.

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Consumer sentiment declines to lowest point since house prices declined: Westpac

The January sentiment fall is significant, marking the biggest monthly decline in over three years. January reads should be treated with some caution as the Index is adjusted to remove a regular boost to sentiment over the holiday season. However, even allowing for this, the update clearly marks a poor start to the new year. The Index is down 5.3% compared to this time last year.

All index components recorded declines with the biggest falls around expectations for the economy and assessments of current finances.

On the economy, the ‘economic outlook, next 12mths’ sub-index dropped 7.8%, the biggest fall since September 2015 when sentiment was hit by a sharp sell-off in financial markets and a disappointing update on Australia’s growth. The ‘economic outlook, next 5yrs’ sub-index also showed a sizeable 5.9% decline. Despite the weakening, both of sub-indexes remain comfortably above their long run average levels suggesting the economy is still a support for sentiment overall.

Consumer sentiment declines to lowest point since house prices declined: Westpac

Consumer views on family finances also recorded a poor start to the year. The ‘finances vs a year ago’ sub-index posted a sharp 5.9% decline taking it back to near 2018 lows. The sub-index tracking expectations for ‘finances, next 12 months’ recorded a milder 3.1% fall. Pressure on family finances remains a key weak spot for sentiment with both sub-indexes well below long run average levels. Slow wages growth and falling house prices remain significant headwinds.

Consumer attitudes towards major purchases were more resilient, the ‘time to buy a major household item’ sub-index dipping just 1.3%. However, this sub-index remains below average with the weak reads around family finances pointing to a continuation of the sluggish consumer spending growth seen through 2018.

Matthew Hassan is a senior economist with Westpac.

 

 

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Westpac Consumer Sentiment

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