Despite the second rate cut from the Reserve Bank, consumer sentiment has fallen by 8.3 per cent in December from 103.4 in November to 94.7.
The Westpac Melbourne Institute index of consumer sentiment showed that consumer sentiment has fallen to its lowest level since August this year when respondents were concerned about interest rates and the global financial markets.
Bill Evans, Westpac chief economist, said on face value it was a “surprise” that the index didn’t rise as a result of the second rate cut but past cycles, rate cuts do not guarantee an improvement in sentiment.
“Since 1994 we have seen 20 rate cuts including last week's. On 12 occasions the Index has increased following the rate cut and on 8 occasions it has fallen. The likely explanation is that respondents' concerns over the reasons behind the rate cut may overwhelm the perceived benefits of the cut itself,” he said.
“For this survey we also ask respondents questions about those news items which they most recall and whether these items are perceived positively or negatively. When interest rates are moving they typically capture considerable attention. For this survey news on interest rates was recalled by 31.5 per cent of respondents whereas economic conditions attracted the attention of 60 per cent; international conditions 55.6 per cent and Budget and taxation 36.9 per cent.”
Also, four of the five components of index fell in December.
The sub-index tracking views on "economic conditions over the next 12 months" was down by 19.4 per cent; while "economic conditions over the next 5 years" fell by 14.4 per cent; "family finances compared to a year ago" fell by 8.6 per cent although “expectations for family finances over the next 12 months” improved by 3 per cent.
Similarly, attitudes towards purchasing housing and motor vehicles also fell modestly. The index tracking views on "time to buy a house" was down by 1.9 per cent while the index tracking views on "time to buy a Car" was down by 1 per cent.