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OOPS: Australian consumer confidence just went backwards

Photo by Ian Waldie/Getty Images

Australian consumer sentiment fell unexpectedly in March, bucking improvements seen in other consumer-related surveys.

The Westpac-MI consumer sentiment index fell 2.2% to 99.1, leaving the index below that 100 level that indicates pessimists outnumber optimists.

Three of the survey’s five subindices deteriorated during the month with the steepest decline registered in perceptions towards family finances compared to a year ago which fell 8.2%.

In what is a slightly concerning development given the need for household spending to remain robust in the years ahead, the subindex on whether now was a good time to buy a major household item slid 6.6%.

Elsewhere, perceptions towards the economic outlook looking five years ahead dipped 2.5%.

Offsetting those declines, expectations for the economy in the year ahead jumped by 8.2%, perhaps as a result of last week’s strong December quarter GDP report, while perceptions towards family finances in the year ahead edged up 0.2%.

The table below, supplied by Westpac, reveals the internal movements in the report, both from last month and a year earlier.

According to Bill Evans, chief economist at Westpac, continued financial market volatility, along with increased concern over the outlook for Australia’s property market, contributed to the weakness seen in March.

“The market volatility and unfavourable media coverage on property markets appears to have triggered a reassessment of risk preferences,” said Evans.

“When we asked consumers about the ‘wisest place for savings’ there was a much higher proportion nominating ‘pay down debt’ – 24.4% in March compared to 17.8% in December – with this month’s reading the highest since December 2011 (26.6%) when the European Financial Crisis was in full swing.”

“This move to more risk averse preferences also saw a 4.5 percentage point increase in the proportion of respondents who favoured fixed interest investments, including bank deposits with significant reductions in the proportion nominating real estate (down to 14.7% from 23.4% in December) and shares (down from 9.9% in December to 7.6% in March).”

Despite negativity towards the housing market generated by the tax debate underway in Canberra, and survey participants indicating less desire to invest in real estate in March, that wasn’t enough to impact sentiment to house prices or whether now was a good time to buy a dwelling – they both went up.

The survey’s time to buy a dwelling index rose 5.4% to 104.7, leaving the index up 3.0% from September. That sentiment was replicated in the separate house price expectations index which jumped 9.8%, leaving it up 16.6% from December.

“The divergence between this indices and views on real estate as an investment may reflect uncertainty around potential changes to taxation policy affecting negative gearing,” noted Evans.

Outside of housing, unemployment expectations continued to rise, pointing to reduced confidence in the labour market outlook. It rose 1.3% to 147.3, leaving the index up 9.2% over the past six months. This result fits with recent weakness in both the official ABS data along with lead indicators like the ANZ job ads series.

With the report providing mixed messages when it comes to the outlook for confidence, Evans maintains the view that the RBA will leave interest rates on hold throughout 2016.

“Given the recent GDP report showing Australia grew by a relatively impressive 3% in 2015, the current unemployment rate is a long way short of a print that would prompt a policy response from the Bank,” he said.

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