Consumer sentiment still 'deeply pessimistic': Westpac survey
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The news: Consumer sentiment in Australia remains in a "deeply pessimistic" range that has persisted for two years, according to the Westpac Melbourne Institute Consumer Sentiment Index.
The numbers: The index declined 1.1% to 82.7 in July from 83.6 in June. A ‘neutral’ level is a reading of 100, meaning pessimists outnumbered optimistic by over 16 percentage points.
The sharpest fall was in the ‘family finances vs a year ago’ sub-index, which dropped 8.4% to 63.5, giving back almost all of last month’s 9.7% lift.
Consumer expectations for their finances also deteriorated. The ‘family finances, next 12 months’ sub-index declined 4.5% to 92.1, the weakest read since the end of last year.
Other components improved slightly, with consumers a little less pessimistic about the economic outlook and around attitudes towards spending. The sub-index tracking assessments of the ‘economic outlook, next 12 months’ rose 3.6% to 81.4, while the ‘economic outlook, next five years’ sub-index nudged up 0.5% to 94.5.
The ‘time to buy a major item’ sub-index lifted 3.1% to 82.1 but remains well below its long-run average of 124.
Elsewhere, consumer expectations for variable mortgage rates over the next 12 months jumped 12.8% in July, marking the steepest monthly rise since the survey first introduced the question at the start of 2022.
The index has surged 30% in just three months, from a below-average read of 122.8 in April to 159.2 in July, with a historical average of 143.8. The rise is the sharpest seen in the last seven years, with just under 60% of consumers expecting mortgage rates to rise over the next year.
The context: Westpac economist Matthew Hassan said that the July update shows that fears of persistent inflation and further interest rate rises are again weighing more heavily on the consumer mood, offsetting any boost from the arrival of the ‘stage 3’ tax cuts and other fiscal support measures.
Hassan noted that as these measures came into effect from 1 July, many consumers would not have seen any cash flow impacts so far given that payment cycles — for both incomes and for the electricity and rent expenses set to receive more cost of living support — are often fortnightly or monthly.
The report found biggest declines in sentiment were amongst middle income earners, Victorians, and hospitality and construction workers.
The source: Westpac Melbourne Institute Consumer Sentiment Index
