By Aimee Chanthadavong

Following a solid jump in September, which was largely influenced by the expected election result, the Westpac Melbourne Institute Index of Consumer Sentiment for October has fallen by 2.1 per cent.

The Index has moved from 110.6, which was recorded in September, to 108.3 in October. Despite this drop, the Index is still 2.5 per cent above the level in August and 9.2 per cent above its level a year ago. Apart from last month’s 4.6 per cent jump, October’s result is the highest the Index has been since March this year.

Westpac chief economist Bill Evans said the retreat in consumer sentiment was due to number of factors.

“The modest fall in the Index is probably due to an expected retreat following the positive expectations around the election result,” he said.

“Other factors that might have weighed on the Index were the steady fall in the sharemarket through the survey week (down 2 per cent) and the steady rise in the Australian dollar (up from USD 0.93 cents to 0.94 cents) through the survey week.

“The shutdown of the US government and media speculation around a US government default would also have unnerved respondents.”

The sub-index tracking of consumers’ expectations showed the 12 month outlook for October dropped by a significant 5.5 per cent while the comparison with a year ago improved by 0.7 per cent.

At the same time, views on ‘whether now is a good time to buy a major household item’, improved by 6.9 per cent in September and a further 3.2 per cent in October. Although, Evans said: “However, in this cycle, this index component has been consistently strong without any pick-up in consumer spending.”

The October Index also showed respondents continue to remain concerned about jobs.

“The Westpac Melbourne Institute Index of Unemployment Expectations rose in October by 0.6 per cent in October, indicating more consumers expect unemployment to rise over the year ahead,” Evan said.

“The Index is 10.1 per cent above the level in November 2011 (the date of the first rate cut in this cycle), indicating significantly more heightened concerns around job prospects than at that time.

“That contrasts with the overall Consumer Sentiment Index which is 4.7 per cent above its level in November 2011.”

Evan has predicted while further rate cuts will happen it is unlikely it will happen at the next meeting when the Reserve Bank board meets on 5 November 2013.

“The Board is likely to await further information on the sustainability of the boost to consumer and business confidence, which occurred around election time and whether that boost is being reflected in hiring; investing; and spending decisions,” he predicted.

“Developments in the housing market, particularly around the recent uplift in Sydney property prices, will also be considered by the Bank. We expect that rate cuts will resume early next year.”