It is said “money can’t buy you happiness”. Nor, it seems, can it buy confidence.
Despite the Reserve Bank delivering successive months of lower borrowing costs and the Federal Parliament clearing the way for immediate tax relief, Australian consumers became resolutely pessimistic in July.
The long-running Westpac-Melbourne Institute consumer survey found sentiment fell 4.1 per cent, plunging into pessimism.
While the overall June reading of 100.7 was marginally optimistic, consumers questioned immediately after the first interest rate cut were far glummer about the economy.
The July survey, based on 1200 interviews, further entrenches the view that rate cuts are equated with a deteriorating economy, rather some sudden good fortune.
It was conducted in the first week of the month, taking in the RBA’s second 25-basis-point rate cut, as well as news the Federal Government’s tax cuts had been passed unscathed.
“The fall in sentiment this month is troubling as it comes against what should have been a supportive backdrop for confidence,” Westpac’s Matthew Hassan said.
The other good news that failed to impress consumers included more signs that the Sydney and Melbourne housing markets are stabilising and a truce in the US-China trade war.
“Despite these positives, Australian consumer confidence has fallen to a two-year low,” Mr Hassan noted.
Job prospects dim, housing prospects brighter
Mr Hassan said the muted response to both the interest rate cuts and tax relief may stem from the fact that both developments were widely anticipated.
“Notably, the sub-group detail showed no boost to sentiment amongst groups that stand to benefit most from policy easing; sentiment amongst mortgage holders declined 3.3 per cent in the month and sentiment amongst middle income earners was down 5.5 per cent,” he said.
Sentiment among those with a trade qualification was also down almost 8 per cent, suggesting the residential construction downturn may be starting to weigh more heavily on some households.
The sub-index tracking expectations for the economy over next 12 months has fallen more than 16 per cent since the release of disappointing first GDP data.
Australia’s economic growth tumbled under 2 per cent in the first three months of the year — the worst result in the decade since the GFC.
The sub-index tracking consumers’ expectations for their own finances in the next 12 months also recorded a sharp 8 per cent fall, while the increased anxieties about the economy is undermining confidence about job security.
Consumers in New South Wales, Victoria and Western Australia were particularly glum about the likelihood of unemployment rising.
However questions relating to housing was one area showing a marked improvement in sentiment.
Expectations about house prices are now at their highest level in more than a year and getting back towards their long-term average.
Consumers are also more bullish about buying houses following sharp corrections in most major property markets.
“The main driver continues to be deepening concerns about the outlook for the Australian economy and prospects for family finances.”
The slump in confidence mirrors similar wobbly sentiment in business which enjoyed a brief, but now extinguished burst of post-election optimism.
Consumer sentiment by category
|Index||Average||July 2019||Percentage change 1 month||Percentage change 1 year|
|Family finance vs 1 year ago||89.4||85.7||+3.0pc||-3.4pc|
|Economic conditions vs next 12 months||90.9||87.1||-12.3pc||-2.2pc|
|Time to buy a dwelling||119.6||123.2||+5.4pc||+19.5pc|
|House price expectations||125.5||119.4||+8.9pc||+6.1|
Source: Westpac-Melbourne Institute