If there was any doubt that middle Australia is doing it tougher than most, it’s surely found in the table below.
From the latest Westpac-MI consumer sentiment report for June, it shows the change in sentiment levels by demographic group, both over the past month and from a year ago.
It’s the latter that immediately caught our eye, sticking out amidst an almost unilaterally downbeat report on confidence levels among Australians.
Sentiment from middle-aged Australians earning average incomes has been crunched over the past 12 months.
For those aged between 25 to 44 years of age, sentiment has fallen by close to 11% over the past year, more than double the decline registered among those aged 45 years or older. That decline was also in stark contrast to those aged 18-24 years who were the only group to record an improvement in confidence levels from a year earlier.
It was a similar story from a household income perspective with those earning between $60,000 to $80,000 seeing confidence levels plunge by close to 20% in just the past year.
20% — more than double the decline registered in any other income bracket.
This is middle Australia, the workhorse of the economy, and this cohort is clearly doing it tougher than most this year.
Soaring house prices in Australia’s largest cities, weak income growth, higher energy prices, elevated levels of unemployment and out of cycle mortgage rate increases, among others, have clearly made an impact.
Those factors were reinforced by some of the findings of the latest survey.
On recent news surrounding the economy, Westpac said there was increased recall on economic conditions, taxation and interest rates in the June survey, with views on all three items seen as more unfavourable that what was the case when the same questions were asked three months earlier.
On the final news item — interest rates — respondents were the most downbeat that they’ve been since June 2008. That was a period when the RBA was seriously considering hiking interest rates in response to stubbornly high inflation, and came just before the onset of the global financial crisis.
And reflective of that increased pessimism, respondents continued to express caution as to the wisest place for savings.
Westpac said that around two in every three consumers favoured “safe” options – bank deposits, superannuation or paying down debt – over “riskier” ones such as real estate or shares in June.
It also said that the proportion specifically nominating “pay down debt” as the wisest place for savings remained elevated at 24%.
Separate readings on unemployment and house price expectations also deteriorated in June compared to a month earlier.
It’s no wonder that household consumption, the largest part of the Australian economy at a smidge under 60%, has been so weak of late.
Many Australians are getting squeezed, and that’s clearly demonstrated by the sharp fall in sentiment levels seen over the past year.
From a broader perspective, it’s apparent that middle Australia is not alone on that front with most other demographic groupings reporting lower confidence levels than a year ago.
Indeed, the headline consumer sentiment index fell by a further 1.8% to 96.2 in June, leaving it at the lowest level since April 2016.
It’s now fallen in each of the past three months, with pessimists outnumbering optimists in each of the past seven months.
As a reminder, a score of 100 means that the number of people who are optimistic equals the number who are pessimists. Anything under 100 reflects that pessimists are in the majority.
Like the headline index, most of the internals of the report were also weaker, especially from a year earlier.
After seasonal adjustments, the subindex measuring family finances compared to a year ago fell by 1.5% last month, taking the decline over the past year to 9.9%.
Again, reflective of the squeeze being felt by households at present.
The survey’s other components also weakened noticeably over the same period, particularly towards the economy.
Perceptions towards economic conditions looking one and five years ahead fell 6.7% and 6.5% respectively, while those on whether now was a good time to buy a major household item also fell by 4.6%.
At 2.3%, the decline registered in views towards family finances was the smallest of all categories over the past 12 months.
While the recent Australian GDP report likely played a role in the sharp drop in economic sentiment during the month, it’s hardly a stellar report card on the current mindset of households.
“The component detail shows increased pressure on family finances and renewed concerns about the economic outlook as the main factors driving the June’s fall,” said Matthew Hassan, senior economist at Westpac.
“Latest official figures highlight continued weakness in household incomes, which have barely outpaced inflation over the last four quarters. Recent increases in mortgage interest rates and electricity costs have likely added to pressures.”
Given the internal movements in the June survey, Hassan says it shows “conditions remain lacklustre across the consumer sector, suggesting demand will remain sluggish near term”.
However, while it’s clear that households are doing it tough at present, he points out that despite recent weakness, “confidence is not overly weak”.
It’s soft, yes, but what’s more important in his opinion will be whether that translates to even weaker levels of household spending, and in all likelihood softer economic growth.
“For policymakers, the main risks still surround the potential feedback from weak household spending to employment and investment,” says Hassan.
“For now, the picture around labour market conditions still looks more encouraging.”
We’ll get further information on that front tomorrow when the ABS releases Australia’s jobs report for May.