Consumer sentiment remains cautious

The Westpac-Melbourne Institute Index of Consumer Sentiment rose 2.3% in January but despite this modest improvement the sentiment index remains in pessimistic territory.

This week’s ANZ –Roy Morgan Consumer Confidence index showed a slight decline, 0.6%, reversing nearly half the prior week’s increase. The index also saw a poor performance from one of the key measures ‘the time to buy a household item’, which took a deeper fall on 5%, hitting its lowest level since mid-December.

Westpac senior economist, Matthew Hassan (pictured) said the downbeat mood has prevailed since mid-2019 and coincided with a marked slowdown in consumer demand that looks to have carried into early 2020. He said the lift in sentiment likely reflects easing concerns around bushfires and comes despite some significant negative developments, most notably the coronavirus outbreak abroad.

“The week also saw a confident tone from the Reserve Bank with a range of commentary emphasising the bank’s positive medium-term outlook for the Australian economy. Notably, consumer sentiment readings showed a clear improvement over the course of the survey week.

“Against this, the escalating coronavirus outbreak looks to have had only a limited effect on consumer sentiment. While surprising, this is similar to the experience during the SARS outbreak in 2003 which had little or no impact on sentiment in Australia, although it had a material impact on confidence elsewhere, China in particular. The fairly muted response from financial markets may also have dampened the sentiment impact locally with the ASX is down only 0.6% since the previous survey in January.”

However, Hassan said while the outbreak is yet to be felt locally there may be more of a drag on sentiment in the months ahead, particularly as the hit to sectors such as tourism and education start to come through. Attitudes towards major household purchases also improved slightly in February, but are still sitting below the November level, suggesting consumers will continue to keep a tight rein on discretionary spending.

ANZ head of Australian Economics, David Plank said consumer confidence has displayed a sawtooth pattern in recent weeks, with offsetting moves in many of the components leading to a lack of overall direction.

He said last week’s upbeat assessment of the outlook by the Reserve Bank may have buoyed the future economic conditions index, which rose to its highest level since mid- November, but sentiment around current conditions was lower.

“Heavy rain and floods in parts of the east coast and the coronavirus epidemic may have contributed to the weakness in these aspects of the survey. Overall, consumers are cautious, and it is difficult to see this lessening any time soon.”

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