Volatility in global stocks and falling house prices are taking a toll on Australian households.
They’ve become more pessimistic about the outlook for their finances, dragging overall confidence levels lower in April.
The latest Westpac-MI consumer sentiment index fell by 0.2% to 102.4, leaving it above the 100 level where the number of optimists and pessimists are equal in number.
Optimists have now outnumbered pessimists for the past five months.
While a noticeable improvement from this time a year ago, Bill Evans, Chief Economist at Westpac, says the encouraging lift in confidence seen in the second half of last year now appears to be stalling.
“The 10% rally we saw in the index through the second half of 2017 has stalled. Indeed, since the beginning of the year the Index has fallen by around 2.5%,” Evans says.
“Certainly, at 102.4 the index is still well below the strong 105–115 levels typically associated with a robust consumer.”
Evans pins the recent moderation on growing unease about the outlook for finances and the labour market.
“The subindex tracking views on finances over the next 12 months posted a sharp fall of 5.8% in April. This marks the lowest read since September last year,” he says.
“With stock market volatility persisting over the last month and house prices declining since the start of the year respondents have become more nervous around the outlook.”
And despite over 420,000 jobs having been created over the past 12 months, sentiment towards the labour market also took a hit in the latest survey.
“The [surveys] unemployment expectations index, which can be viewed as a measure of consumers’ sense of job security, rose 3.1% in April to 125.7,” says Evans.
“The shift is notable with April the worst read this year.”
A higher reading indicates that more Australians expect unemployment will increase in the year ahead, an outcome that may have been influenced by Australia’s official unemployment rate lifting to 5.6% in February.
This table from Westpac shows the movements in each of the surveys five categories, both from a month earlier and over the past year.
Ongoing pessimism towards the housing market in Sydney and Melbourne may have been another factor that weighed on confidence with the ‘time to buy a dwelling’ index falling 0.5% to 104.0.
“The index remains well below its long run average of 120 and is considerably weaker across consumers in Sydney (92) and Melbourne (93),” Evans said.
Home prices in both of these capitals have been falling for several months.
However, while pessimism towards the outlook for finances increased, sentiment towards the economy improved, providing an offset for overall confidence levels.
“Both economic outlook components posted gains,” said Evans.
“The economic outlook over the next five years subindex rose 2.9%, unwinding some of last month’s 4.1% pull back which likely related to increased tensions around global trade following the announcement of tariff increases on steel and aluminium in the US.”
With confidence levels indicating that Australians are unlikely to rush off to the shops and spend aggressively anytime soon, Evans retains the view that the Reserve Bank of Australia (RBA) will be in no rush to lift interest rates.
“Westpac continues to expect the cash rate will remain on hold through 2018 and 2019”, Evans said.