Consumer confidence has taken a battering from bad news in Australian manufacturing industry and concerns about looming interest rate rises and employment prospects.
The Westpac Melbourne Institute Index of Consumer Sentiment fell by 3% in February to 100.2 from 103.3 in January.
Westpac Chief Economist Bill Evans described it as a “surprisingly weak result”, adding:
“We suspect the run of ‘bad news’ around the motor vehicle industry, other manufacturers and Qantas may have rattled consumers. There may also be heightened concerns about what lies ahead with the May Budget.”
The Index is now down 7.5% on a year ago; 9.5% on its recent September high and is at its lowest level since July last year. The Australian dollar fell slightly on the data.
“The theme from this survey appears to be that households are particularly worried about the future,” Evans says.
Households are clearly more worried about interest rates as well. In this survey 57% of respondents expect interest rates to rise over the next 12 months, with 18% expecting increases of more than 1ppt. That contrasts with only 6% who expect some mortgage relief. When we last surveyed this issue in August last year only 39% expected rates to rise.
Exuberance around house prices is starting to wane. The Westpac-Melbourne Institute House Price Expectations Index fell by 2.2%. The Index is now 4.3% below its peak in December but is
still 26.2% above its level at the start of last year.
He says the March index will be a better guide to what is behind this loss of confidence in the economic outlook.
The March survey includes additional questions on news recall and news perceptions.