The latest reading of the Westpac/Melbourne Institute consumer confidence index shows a continuing decline in sentiment.
The August reading showed a measure of 95.5, down 1.2% from a 96.6 measure in July.
The reading has been steadily decreasing since a reading of 99.7 in March this year. That was still below the 100 mark which shows that consumer sentiment is net-positive.
“The consumer mood has deteriorated over the last year with August marking the ninth consecutive month where pessimists are outnumbering optimists,” said Westpac chief economist Bill Evans
“We have not seen such a succession of weak reads since 2008.”
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Sentiment around housing picked up slightly, with the “time to buy a household item” index edging up by 0.8% but remaining low by historical standards.
Housing sentiment differed significantly from state to state depending on the relative level of affordability.
“The detail shows mixed moves across different regions with buyer sentiment falling towards very low levels in Sydney and Melbourne – where affordability pressures remain acute – but surging in Western Australia, where affordability has improved markedly,” Evans said.
Expectations for future house prices also remained steady, ticking higher by 0.6% after a strong bounce of 8.6% last month.
Once again, sentiment rose most strongly in WA which had its second strongest monthly reading for house price expectations since late 2014.
Falls in the index were led by dimming sentiment towards household finances which fell by 5.1% to 78.1, the lowest level since 2014 after the Abbott government’s first budget.
“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,” said Westpac chief economist Bill Evans.
“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 around jobs,” Evans added.
The poor reading on current household finances came in spite of a slightly more positive backdrop for consumer sentiment in recent weeks.
In addition to the RBA keeping rates on hold last week, monthly employment figures have been steadily improving and the recent strength in the Aussie dollar has improved consumer purchasing power.
While the view towards current finances was negative, consumers were slightly more optimistic about the road ahead.
The 2.1% rise in sentiment towards future household finances meant that the reading for that sub-index moved above 100, indicating that optimists outweigh pessimists.
That confidence extended to consumer’s views toward the broader economy, with sentiment towards current economic conditions nudging higher by 0.4%.
Views toward future economic conditions showed a solid 2.6% increase, although that only partly reversed a fall of 9.6% over the previous two months.
Evans said that the fall in current household finances may be partly due to the delayed effect of out-of-cycle rate hikes on mortgage rates by the major banks in June.
“After posting a surprisingly firm 4.7% rise in July, sentiment amongst consumers with a mortgage fell 6.3% in August,” he noted.
The latest index also included an additional question (asked every six months) about the outlook for interest rates.
Interestingly, most of the consumers surveyed are bracing for a rate hike — 71% expect rates to be higher in 12 months, compared to just 60% the last time the question was asked in February. 27% of respondents expect rates to be steady while just 2.6% are forecasting a rate cut.
Looking ahead to the outlook for the RBA’s future interest rate settings, Evans maintained his view that the RBA will keep interest rates on hold throughout 2018.
Although market pricing (and the responses from the latest consumer confidence index) suggest that interest rates in Australia will rise next year, Evans said that headwinds remain as consumer sentiment remains soft and major housing markets are likely to slow as affordability continues to be stretched.
“Our view is that these factors will slow growth and, along with an inflation rate which remains stubbornly below the Bank’s target zone, will preclude the need for higher rates next year,” Evans said.
This table shows the recent trends in the headline figure and the sub-indexes that it’s comprised of:
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