Consumer sentiment falters in December

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Consumer sentiment fell by 3.9% in December according to the latest Westpac Melbourne Institute of Consumer Sentiment.

The Index dropped from 101.3 in November to 97.3 in December, which is the lowest level since April.

“At 97.3 there is now a clear majority of pessimists over optimists with the Index down 3.5% relative to a year ago,” says Westpac chief economist, Bill Evans.

Evans attributes the fall in confidence to renewed concerns about the economy, interest rates and the labour market.

“Since September respondents reported significantly less favourable assessments of Australian economic conditions; employment; and interest rates,” he notes.

“Supporting these concerns would have been the announcement that the Australian economy contracted in the September quarter although because the media, quite appropriately in my view, chose not to raise any ‘recession’ scares the impact on confidence seems to have been relatively modest.

“News that banks have been raising some interest rates, partly in response to a sharp increase in wholesale rates following the US election result, appears to have unnerved respondents around the interest rate outlook.”

Evans adds that official data on the labour market continues to disappoint with employment growth remaining very soft.

There were falls in all key components of the Index in December:

  • ‘family finances vs a year ago’ fell by 2.0%
  • ‘family finances, next 12 months’ fell by 1.8%
  • ‘economic conditions, next 12 months’ was down 5.2%
  • ‘economic conditions, next 5 years’ dropped 2.5%
  • ‘time to buy a major household item’ plunged by 7%.

Evans highlights the mixed views on the housing market.

“The ‘time to buy a dwelling’ index lifted by 2.6% to be up 3.7% on a year ago. This improvement mainly reflects a sharp recovery in confidence in the Sydney, which has seen large sentiment swings over the last two years,” he notes.

“Overall, however, the average reading for Sydney over the last six months is 45% higher than over the second half of 2015.”

And while the index of house price expectations dropped by 4.5% this month, it is 8.5% higher than a year ago.

As for the outlook for interest rates, Evans is tipping the RBA will leave rates on hold at its next Board meeting in February.

“While the 0.5% contraction in the Australian economy in the September quarter would have come as a surprise and that result has undoubtedly impacted consumer sentiment, I expect the Board will be more confident about the economic outlook for 2017.”


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