Confidence levels among Australian households fell modestly in December with the Westpac-MI consumer sentiment index slipping 0.8% to 100.8.
Despite the monthly decline, overall sentiment levels remain 10.7% higher than December 2014.
A reading of 100 is deemed neutral, meaning the number of optimists and pessimists is equal. A figure above 100 indicates optimists outnumber pessimists while a figure below 100 suggests pessimists outnumber optimists.
Westpac report that two of the five survey components fell during the month with weakness in perceptions towards the economy offset by strength in those towards family finances and whether now was a good time to buy a major household item.
Sentiment towards economic conditions looking five years ahead fell by 11.3%, near triple the decline registered for the year ahead which slid 4.2%.
In contrast, gauges on family finances, both looking back a year and in the year ahead, rose strongly, adding 5.5% and 5.8% respectively. In addition, the component index indicating whether now was a good or bad time to buy major household items increased by 0.8%.
While the monthly movements were mixed, Westpac note that all gauges are higher than they were 12 months earlier with gains ranging from 8% to 13.4%.
The table below, supplied by Westpac, reveals the individual movements in the survey’s five components – both compared to November and a year earlier.
Despite the small dip in sentiment, Westpac chief economist believes the December result was reasonable nonetheless.
“The Index has held on to most of the gains from last month’s surprise 4% lift and is 10.7% above its levels this time last year,” wrote Evans, adding “there have only been two months since January 2014 with higher index readings.”
He also notes that the movements in the surveys five components were largely a reversal of those movements seen in November.
“Last month we saw a surge in sub-indexes measuring the economic outlook whereas respondents assessments of their finances deteriorated. We attributed the economic boost to confidence in the Government’s new leadership team, and the concerns around finances to the banks’ mortgage interest rate increases in October.”
“In this month’s survey assessments around finances have almost fully recovered their October levels but expectations for the economic outlook have been pared back, albeit with these components still well above their October levels.”
Outside of the main survey components, expectations for unemployment deteriorated modestly for a second consecutive month, something that came despite recent strength in labour market data. The surveys unemployment expectations index rose by 1.7%, although it remains some 9.4% below the level seen just two months earlier. A higher reading suggests confidence in the labour market is weakening.
Fitting with the recent trend in auction clearance rates and house prices, the index tracking assessments of whether now was a ‘time to buy a dwelling’ fell by a further 3.4% to 99.5. The index is now 5.3% below the level of a year ago and 31.5% below its most recent high set in September 2013.
The decline in buying sentiment was mirrored in the separate house price expectations index which fell 9.4%. In what is a worrying sign for near-term property market conditions, it has fallen 19.7% over the past year and 38% from its peak in 2013.
“Housing-related sentiment continues to show sharper falls and considerably weaker reads in NSW and Victoria where the individual state ‘time to buy a dwelling’ indexes are at 78.0 and 83.4 respectively,” noted Evans.
“House price expectations have also fallen more heavily in these two states although households in WA remain the most pessimistic on prices.”
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