By Kymberly Martin
Rising just 0.1%.
The Westpac Melbourne Institute Index of Consumer Sentiment rose by just 0.1% in January, from 97.3 in December to 97.4.
Following December’s 3.9% decline, sentiment was little changed in January, rising just 0.1%. At 97.4, pessimists clearly outnumbered optimists for a second consecutive month in January (100 being the neutral point),” Westpac’s Senior Economist, Elliot Clarke (pictured), commented.
“December and January are the weakest outcomes since April 2016, when the Index printed at 95.1. During the intervening seven months, the Index has averaged 101.5, aided by interest rate cuts from the RBA and, in May, a more favourable Federal Budget”.
Clarke said the absence of a rebound in January is a disappointing result, particularly when factoring the cumulative 10% gain for Australian equities over the past two months and, to a lesser extent, a nascent improvement in the pace of job creation.
Views on family finances were also mixed, relative to a year ago, having fallen 2% in December and a further 7.6% in January. This sub-component is now down 16% from its 2016 peak, seen in February. However, despite the marked deterioration in current perceptions of family finances, the ‘time to buy major household items’ sub-component has held up well with a 4.9% rebound in January followed December’s 7% decline.
Turning then to the housing market, the ‘time to buy a dwelling’ index fell 2% in January to be back near its most recent low of November 2016. “But that still leaves the index around 6% above its 2016 low, reached in April. At its current level, this measure sits some 16% below its historic average.
“That being said, the Westpac Melbourne Institute Index of House Price Expectations surged again in January to 149.6, its highest reading since April 2015 (152.1). NSW again led the charge in January. However, material gains were seen in house price expectations across the nation. For all states except WA, price expectations are above their respective long-run averages” Clarke said.
The Reserve Bank Board next meets on February 7 with expectations rates will be kept on hold. “While the 0.5% contraction in the Australian economy in the September quarter would have come as a surprise and that result has undoubtedly had a lasting impact on consumer sentiment, we expect the Board will be more confident about the economic outlook for 2017.
“A boost to the terms of trade from higher commodity prices; sustained strong conditions in the major housing markets; still positive forward indicators for jobs; a stronger global outlook; a boost to resources exports; and a significantly reduced drag from mining investment point to the Australian economy’s growth rate lifting from the current 1.8% to 3.0% in 2017, precluding any need for further rate cuts,” Clarke said.