The Westpac/Melbourne Institute consumer sentiment index picked up in August after four straight months of falls, albeit remaining below its long-term average.
The headline index rose to 97.9 from 95.5, with a pickup in four of the five major sub-indexes:
Despite the pickup, Westpac chief economist Bill Evans said the Australian consumer remains “downbeat”, with pessimists still outnumbering optimists.
The survey is based on an index of 100. Any figure below that number means that there were more negative responses than positive, and vice versa.
While recent evidence suggests that house prices are starting to cool, the majority of those surveyed still expect house prices to rise in the year ahead.
“Of those consumers with a view, 57% expect prices to rise in the year ahead, 31% expect no change and 12% expect prices to decline,” Evans said.
However, respondents made it clear they still think house prices are high. The “time to buy a dwelling” index increased slightly but remains well below its long-term average at 95.2.
That was driven by an 81.3 reading for NSW, while the recent price-falls in Western Australia left consumers more optimistic about future price action in that market, recording a strong result of 130.4.
In addition, when asked about the best place to invest savings, the number of respondents who recommended real estate hit a 40-year low at 10.5%.
Looking at the main sub-indexes, Evans said that Australian households remain worried about their finances.
The ‘finances vs a year ago’ sub-index rose 6.1% but was coming from a very weak read in August (a three year low),” he said.
“Meanwhile the sub-index tracking expectations for ‘finances over the next 12 months’ fell 2.1%, reversing all of last month’s gain.”
Views towards the broader economy were a bit more optimistic in September. Those surveyed had more positive views of both current and future economic conditions, and despite remaining in negative territory the increases returned those readings to their long-run averages.
The September index also included extra questions on recent news items that consumers recalled most often. Economic conditions (21%), budget and taxation (17%) and interest rates (16%) recorded the highest ratings.
“While news on all fronts was viewed as unfavourable, consumers rated news on inflation and international conditions as much more negative than three months ago – likely reflecting sharp increases in energy costs and developments around North Korea,” Evans said.
Likely reflecting the positive trend in labour market data, news around jobs had a more positive reading.
In the context of the broader economy and by extension the outlook for interest rates, Evans highlighted yesterday’s unusual split between business conditions and business confidence in NAB’s monthly business survey.
“Persistent weak consumer sentiment, consistent with weak consumer demand, may be worrying businesses around the sustainability of current strong conditions,” Evans said.
Pointing to a weaker outlook for consumer spending and residential construction, Evans maintained his forecast that the RBA will have no need to raise interest rates in 2018.