The Westpac–Melbourne Institute Consumer Sentiment Index fell by 5.6% in September
from 99.5 in August to 93.9 in September.
Westpac’s Chief Economist, Bill Evans, commented, “This solid fall in the Index comes as
no surprise. We were somewhat puzzled by the surprise increase in the Index last month
of 7.8% and there was always likely to be some correction this month. Of course the
deluge of disturbing news around violent gyrations in both Australian and overseas equity
markets; poor economic data from China; a disappointing report on Australia’s growth rate
and the weakness in the Australian dollar were also likely to have unnerved households.
“This print on the Index now marks the 17th out of the last 19 months that the Index has
been below 100. A level of the Index below 100 indicates that pessimists outnumber
optimists. After acknowledging some volatility in the series the underlying picture is that
confidence has been little changed over the last year – firmly stuck below 100 and
averaging around 96.
“For the September survey we also ask respondents about the news items they most
recall. This provides an objective test of our assumptions around the factors driving the
movements in the Index. For this survey the most recalled news items were around
domestic economic conditions overseas issues.
Nearly 42% of respondents recalled overseas news items – the second highest proportion on records back to 1975. The
highest proportion came in December 2011 (55%) when the European financial crisis was
dominating headlines. Domestic economic conditions (54%) were also important this
month. Respondents were significantly more negative around domestic conditions than in
“News on the Australian dollar was noted by 15.5% of respondents – the highest on the
dollar since June 2002.
“The government would be pleased to see that ‘Budget and taxation’ caught the attention
of only 23.1% of respondents compared to 62.7% in September last year.
“This heightened concern around the world economy unnerved respondents about the
labour market. Almost all respondents who recalled news items about the jobs market
noted that the news was unfavourable.
There was a sharp 5.8% increase in the Westpac–
Melbourne Institute Index of Unemployment Expectations (a higher print indicates
heightened employment concerns). The Index is now at its highest read since December
“Most of the components of the Westpac-Melbourne Institute Consumer Sentiment Index
fell in September. Households responded negatively around their own finances.
Tracking assessments of ‘family finances vs a year ago’ fell by 5.7%, while that
tracking expectations for ‘family finances over the next 12 months’ fell by 1.1%.
Nevertheless, both of these components is comfortably higher relative to September last
year (7.6% and 8.7% respectively). The volatile sub-index tracking expectations for
‘economic conditions over the next 12 months’ fell by 11.2% (down 11.5% over the year)
while the sub-index tracking expectations for ‘economic conditions over the next 5 years’
increased by 6.2%.
“However, the biggest move came from the sub-index tracking assessments of ‘time to buy
a major household item’ which fell by 13.5% to be down by 13.3% over the year. While the
fall in the ‘finances’ components would explain part of this fall the near 5% drop in the
Australian dollar since the last survey may have discouraged purchasers who will now be
expecting higher import prices.
“Confidence around the housing market continues to erode. The ‘time to buy a dwelling’
index fell by 0.9% to be 8.6% down on a year ago and 30% lower than 2 years ago. The
New South Wales Index continues to underperform with a 14% fall this month to be 34%
down on a year ago and 55% over the last 2 years. Within that Index the Sydney
component is down by 46% over the last year and has reached its lowest level since the
survey began in 1975.
“House price expectations are also waning. The Westpac House Price Expectations Index
fell from 132.7 in August to 127.3 in September (down by 6.1%). This Index is now down
by 17% over the last year although remains well above 100 indicating that
more respondents still expect prices to continue to rise.
“This month we also asked respondents about their choice of the wisest place for savings.
Bank deposits remain the most popular choice at 27% (down from 29.4% in June).
However this was lowest proportion registered since September 2009.
“This evidence of lower risk aversion is further highlighted by the lift in real estate as a
favoured form of saving. The proportion of those respondents favouring real estate
increased from 24.6% in June to 28.2% in September. This represents the highest
proportion of respondents favouring real estate since September 2003 – the last time we
had an investor-led boom in real estate.
“The increase in the proportion favouring real estate is likely to be capturing the improving
optimism of investors in the housing market whereas the deteriorating prints on the ‘time to
buy a dwelling’ index is probably reflecting affordability concerns of upgraders and first
home buyers. In that regard note that the Westpac – Melbourne Institute Index of House
Price Expectations continues to point to rising prices, albeit at a slower pace.
“The Reserve Bank Board next meets on October 6. We expect the Board will maintain its
steady rates policy for the remainder of this year and throughout 2016.
“The key to any decision to further cut rates, as expected by the financial markets, will be
whether the Bank’s current forecast that the unemployment rate can stabilise around
current levels proves sustainable.
Despite soft economic growth, jobs growth has been strong over the past year partly because of the strong contribution to jobs from the
improving export services sectors. A sustained deterioration in the jobs market will not be
apparent until next year complicating the market’s expectations of a rate cut by year’s
end,” Mr Evans said.