Consumers report cautious outlook for 2016.
The Westpac Melbourne Institute Index of Consumer Sentiment has fallen by 3.5% in January from 100.8 in December to 97.3 in January. The Index is at its lowest level since September 2015 but remains 4.3% above its level of a year ago, according to Westpac Chief Economist Bill Evans (pictured).
“With limited domestic news during the holiday season consumers appear to have been mainly impacted by the spate of negative news on the international front and the spill over effect on financial markets,” he commented.
“Over the two weeks to the end of the survey the oil price has fallen by 20%. Furthermore, over the same period, the Australian share market has fallen by 7.6% and the US market by 8.0%. News on China’s volatile share market may also be affecting households with the Chinese market down by around 15% since the beginning of the year.
“Not surprisingly these concerns have weighed most heavily on how respondents assess their own financial position. The component of the Index tracking views on ‘family finances vs a year ago’ dropped by 9.4% to be at its lowest level since July last year. Among the other components: ‘time to buy a major household item’ fell by 1.7%,” Evans added.
Retail Council CEO Anna McPhee commented, “Today’s consumer sentiment reading shows the momentum of rising consumer sentiment experienced in the final months of 2015 have not continued into January with the likely impact of this fall attributed to slowing of the Chinese economy and recent sharemarket volatility.”
“Low interest rates, falling unemployment and low fuel prices continue to support rising consumer consumption but perceptions about family finances shows there continues to be an underlying fragility of household confidence that could have a longer term negative impact on attitudes towards spending.
“Today’s sentiment reading highlights how critical it is that Governments effectively consolidate the Budget position but do so without jeopardising household confidence and broader economic growth,” McPhee concluded.
Optimism shows in housing market
There was a sharp 13.9% increase in the ‘time to buy a dwelling’ index from 99.2 in December to 113.0 in January, which is the highest reading for this Index since May last year.
“The sharp increase in the Index in January will reflect some seasonality but the move is so large that we can only conclude that this print may be signalling some improving optimism in the housing market,” Evans said.
Most of the improvement in the national Index was driven by a sharp improvement in New South Wales which has regularly posted the weakest readings amongst the states in recent times.
The Reserve Bank Board will meet on February 2. Despite markets confidently expecting that the Reserve bank would cut rates by February, Westpac has remained firmly of the view that the Bank will remain on hold throughout the second half of 2015 and the whole of 2016.