Australia: Consumers remain downbeat - Westpac

Australia’s Westpac Melbourne Institute Index of Consumer Sentiment rose 2.5% to 97.9 in September from 95.5 in August, notes Bill Evans, Chief Economist at Westpac.

Key Quotes

“The consumer mood remains downbeat with September marking the tenth consecutive month that pessimists have outnumbered optimists. Pressures on family finances, concerns around interest rates, deteriorating housing affordability and rising energy prices have all weighed on confidence in 2017. These factors are more than offsetting the boost from an improved outlook for jobs particularly when a stronger labour market has not been associated with increased wages growth.”

“The survey detail shows family finances remain a key area of concern. The ‘finances vs a year ago’ sub-index rose 6.1% but was coming from a very weak read in August (a three year low). Meanwhile the sub-index tracking expectations for ‘finances over the next 12 months’ fell 2.1%, reversing all of last month’s gain.”

“Consumer expectations for the economy showed more consistent gains. The ‘economic conditions, next 12 months’ sub-index rose 2.7% and the ‘economic conditions, next 5 years’ sub-index posted a robust 5.1% gain. While both are still in pessimistic territory below 100 they are now marginally above long run average levels. The improved but still ‘lukewarm’ sentiment towards the economy likely reflects the somewhat mixed picture from recent data including the June quarter national accounts which showed a reasonably solid 0.8% gain in GDP but subdued annual growth and notable areas of weakness around household incomes and consumer spending.”

“The Reserve Bank Board next meets on October 3. There is no doubt that the Board will continue to leave the cash rate on hold.”

“Of more interest is the medium term outlook for interest rates. While those commentators favouring rate hikes next year point to record business conditions we are starting to see a considerable gap open up between business conditions and business confidence. Persistent weak consumer sentiment, consistent with weak consumer demand, may be worrying businesses around the sustainability of current strong conditions.”

“From our perspective prospects for consumer spending and residential construction appear soft. We do not expect that economic conditions in Australia in 2018 will be consistent with the need for the Bank to raise rates.”