Australian consumer confidence tumbled last week, falling to the lowest level in nine weeks.
The weekly ANZ-Roy Morgan consumer confidence index slid 2.8% to 114.7, leaving it at the lowest level since early June.
Somewhat surprisingly, the fall came despite the Reserve Bank of Australia’s decision to cut interest rates to a record-low level of 1.5%, something that traditionally heralds a lift in overall sentiment levels.
Despite the unexpected decline, the index still remains above its long-run average of 112.8.
According to ANZ, the deterioration was broad-based, particularly when it came to the outlook for the Australian economy.
“Consumers were considerably more pessimistic on the near-term economic outlook,” noted ANZ. “Households’ views of the 12 month economic outlook dipped a sharp 8.6%. Views towards the economic outlook in the next 5 years also fell, but by a much more modest 1.0%.”
Those declines were mirrored in sentiment towards finances, whether looking backwards or in the year ahead.
“Consumers’ views of their current finances fell a solid 2.8%, while their views on future finances fell a similar 2.4%,” said ANZ.
The final component of the survey — whether now was a good time to buy a major household item — dipped by 0.4%.
Felicity Emmett, head of Australian economics at ANZ, called the result “disappointing”.
“The sharp fall in consumer confidence is disappointing. It erases the gains of the past two weeks and brings confidence back to its lowest level in nine weeks,” wrote Emmett following the release of the report.
“The weakness in confidence is more pronounced in the near term economic outlook – possibly reflecting some concerns over the health of the global economy. Indeed, our ANZ Uncertainty Index is at highest level since the euro area debt crisis in 2011.”
While a weak outcome, Emmett suggests that the survey’s measures on finances still remain “relatively robust”, implying household consumption levels will likely remain firm in the period ahead.
“This index has the closest relationship with consumer spending and at current levels suggests that household consumption should continue to grow at a relatively solid pace,” she said.
While one week does not make a trend, the sharp decline in confidence was an anomaly — particularly given the reaction to past rate cuts from the RBA — suggesting consumers perceived the rate cut to be a negative, rather than a positive, for the economy and finances on this occasion.
Though the failure of Australia’s big banks’ to pass on the rate cut in full could have been behind the slump, particularly the gauges measuring personal finances, it does not explain the sharp deterioration seen in near-term economic sentiment witnessed during the week.
It also raises the question as to whether monetary policy is now becoming ineffective in bringing forward future demand, helping to boost short-term economic conditions.
It’s an outcome that the Reserve Bank of Australia will be paying close attention to, particularly should the trend continue in this and other confidence surveys.
We’ll receive some clarity on that front on Wednesday with the Westpac-MI consumer sentiment survey for August scheduled for release.