Consumer sentiment only increased a slight 1 per cent in October from 98.2 in September to 99.2 in October, according to the Westpac Melbourne Institute Index of Consumer Sentiment.
Westpac's chief economist Bill Evans said this is another disappoint result and there are a number of reasons as to why there should have been a greater increase.
“It is of some concern that the Consumer Sentiment Index is still significantly below its level of last November following the first 25bp cut in the overnight cash rate. Since that time the Reserve Bank has cut the overnight rate by a further 125bps but the index is now 4.1 per cent lower.
“Secondly, we saw a surprise fall in the unemployment rate from 5.2% to 5.1% reported for August. In that regard, however, we have seen consistent evidence from consumers’ unemployment expectations that despite a low print on the unemployment rate the vast majority of consumers have been expecting and continue to expect unemployment to rise.
“News from overseas should also have buoyed consumer confidence. The announcements of unlimited quantitative easing by the US Federal Reserve and the provision of an unlimited bond buying facility by the European Central Bank were very positive developments. Accordingly we saw a 3.9 per cent increase in Australia's share price index since the last survey while on the domestic front house prices appear to have stabilised and in some cities housing markets generally are beginning to show some tentative early signs of recovery.”
However, for retailers much of the blame lies on banks failing to pass the full 0.25 per cent rate cut that was announced by the Reserve Bank earlier this month.
Australian National Retailers Association (ANRA) CEO Margy Osmond said the banks’ refusal to pass the rate cut onto consumers have made them think twice about returning to the shops.
“The Reserve Bank of Australia gave retailers an early Christmas gift last week with a drop in the cash rate, but banks refused to come to the party and their delay has had an impact on this month’s reading of consumer confidence,” she said.
“However, retailers will take some comfort from the general view of family finances. Aussie shoppers’ positive view of family finances compared to the same time in 2011 was up 5.3 per cent and they have a slightly healthier view of the year ahead as well (up 2.8 per cent).
“There were also strong signals around now being a ‘good time to buy a major household item’ (up 3.7 per cent) – often an indicator of general willingness to spend.
“In recent times the correlation between confidence and actual spending has not been strong. Retailers will take heart from the fact the banks were only beginning to reduce their rates through the survey period and once the reduction in interest rates filters through to family budgets thoughts may again turn to shopping.
“There are only 75 days until Christmas, so retailers will be hoping to see that family budget boost to come through soon.”
Westpac has predicted at the next Reserve Bank board meeting, which will take place on November 6, the cash rate will be cut by a further 0.25 per cent.
“Our forecast for this cut has been in place since May this year with our forecasts around global uncertainty; softening domestic growth; a weak labour market and dormant inflation all setting the scene for another move by the Bank,” Evans said.