Consumer sentiment steadies

The Melbourne Institute of Consumer Sentiment Index rose a slight 0.2% in June after sitting at near recession lows for the past year, but inflation remains the dominant drag on confidence.

While the full survey showed little net change in sentiment, responses revealed a big rate rise impact. “However, interest rates are not the most troubling issue for all households, as only about a third of households carry a mortgage,” Westpac chief economist, Bill Evans said.

The news items that resonated were inflation (62%), budget and taxation (43%), economic conditions (40%), employment (32%) and interest rates (27.6%).

“News on inflation is assessed as by far the most negative issue, followed by interest rates, while economic conditions, employment and the Budget show significant improvements relative to the last read on consumer news recall in March,” he said. “And most consumers continue to expect further rate rises, with 78% expecting rates to rise over the next year.”

The component sub–index showed mixed results with attitudes towards major purchases falling back to lows seen in February and March. The ‘time to buy a major household item’ sub-index fell 6.5% with buyer sentiment weak across the mortgage belt, amongst women and those over 45.

The ‘economic outlook, next five years’ sub-index posted the biggest monthly gain, a solid

6.3% rise, following a sharp 9.2% fall in May. The ‘family finances, next 12 months’ sub-index declined 2.1%, while the ‘economic outlook, next 12 months’ sub-index was unchanged.

Of most concern was confidence around jobs, which has been the single bright spot in otherwise bleak consumer surveys over the last year, but now looks to be fading fast, according to Evans. “The latest monthly deterioration was led by those working in the education and hospitality sectors,” he said.

The combination of higher interest rates and dwelling prices is driving a sharp fall in homebuyer sentiment, with the ‘time to buy a dwelling’ index falling 5.7%. However, despite the unexpected increase in the cash rate, expectations for house prices remained firmly positive, posting a particularly strong gain in WA (24%) and was firmer in NSW (3.6%).