Increased pressure on family finances.
Consumer sentiment took another dive in August, declining 1.2%, marking the ninth consecutive month where pessimists outnumbered optimists, according to the latest Westpac Melbourne Consumer Sentiment Index. “We have not seen such a succession of weak reads since 2008,” Westpac’s chief economist, Bill Evans said.
The survey detail suggests increased pressures on family finances, concerns around interest rates, and housing affordability in NSW and Victoria are more than outweighing increased confidence about jobs.
The further weakening in consumer sentiment comes despite some positives leading into this month’s survey, Evans said, with the Reserve Bank again opting to leave interest rates unchanged at its August meeting. Other positives include a continued improvement in labour market conditions, lower petrol prices and a booming Australian dollar, which briefly touched US$0.80.
However, the Index components point to clear pressure on family finances with the sub-index tracking views on finances vs a year ago falling 5.1% to 78.1, the lowest level since June 2014, when consumers were shocked by the Abbott government’s first Budget, he said. “Much of the weakness is likely to reflect a mix of weak growth in wages, increases in key costs such as electricity and emerging concerns about rising interest rates.
And, the weak picture on current finances appears to be affecting consumer attitudes towards major purchases. The time to buy major a household item sub-index fell 4.9%, unwinding most of the 6% improvement seen over June-July. Notably, the pull-back has come despite increasingly aggressive price discounting amongst retailers and a likely further improvement in purchasing power from a higher Australian dollar up over US6 cents from its low in May.
“Despite the bleak picture around current finances, consumer expectations are more upbeat as the sub-index tracking expectations for finances over the next 12 months firmed 2.1% to 100.4 in August. A reading over 100 indicates that optimists slightly outnumber pessimists. Consumers were also a touch more positive on the economy with the economic conditions, next 12 months sub-index nudged up 0.4%, and the economic conditions, next five years sub-index posting a stronger 2.3% gain, though coming off a sharp 9.6% drop over the previous two months,” Evans said.
Some of the softening in sentiment in August may be a delayed reaction to recent mortgage rate increases, he said.
The one bright spot for consumers continues to be around jobs with Westpac Melbourne Institute Unemployment Expectations Index declining 2.6% to 132.5 in August. The Index is now at its lowest level since November 2011.