Australian Consumer Sentiment Has Dropped Unexpectedly

Westpac and the Melbourne Institute have just released the September consumer sentiment index for September showing a big fall of 4.6% to 94.

Bill Evans, Westpac’s chief economist, said this was “a surprising and disappointing result”.

“The Index is now 5.8% below the pre-Budget level and only 1.1% above the post-Budget print,” Evans said.

“In effect most of the steady recovery we had seen in the Index over the last three months has been eroded.”

Evans reported that respondents seem most concerned about “budget and taxation” and that news on the budget and taxation, the economy, employment and interest rates was viewed as unfavourable.

Worryingly for the economic outlook, Evans said:

The sub-indexes tracking views on “economic conditions over the next 12 months” and “economic conditions over the next 5 years” fell by 8.4% and 9.2% respectively. The sub-index tracking assessments of ‘whether now is a good time to buy a major household item’ fell by 1.9%.

Of most concern here is the five year economic outlook. This component is typically much more stable than the 1 year outlook but the print in September is the lowest for 16 years. It is down 28.6% on its level from a year ago. Concerns around the medium term outlook are likely to make households more cautious. Logically, such concerns indicate that households expect any current economic weakness to be sustained for a considerable period.

Adding weight to Evans conclusion that consumers are going to be cautious was the inclusion of the extra question in the September survey of the “wisest place for saving”.

“Responses show just over a third of consumers (34%) now favour bank deposits, up significantly on June’s 27%. While that suggests a more conservative approach to finances, the consumers continue to show less emphasis on debt reduction with just 14% nominating pay down debt as the best option – that compares with 17% in June and average readings of 20–25% between 2008 and 2012,” he said.

Recent calls from senior Australian economists including Ross Garnaut, Saul Eslak and Peter Jolly that GDP is overstating actual growth in the domestic economy seem reflected in these results.

Not great economic news and we’ll be watch the Weekly ANZ confidence data and retail sales very closely to see the impact of this over time.

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