MNI POLICY: Australia Sentiment Down But Job Outlook Improves

--Westpac-MI Consumer Sentiment Above 100 for 10 Straight Months

--Sentiment Decline Mainly Due To Impact Of Home Loan Rate Hikes

By Sophia Rodrigues

     SYDNEY (MNI) - Consumer sentiment fell in September, reflecting mainly the

impact of increases in home loan rates but for the Reserve Bank of Australia's

monetary policy the risk to household consumption due to this may be offset by

improved expectations on the labor market.

     Overall, the data is still supportive of the RBA's narrative that the next

move in the cash rate is more likely to be up, than down, but requires close

monitoring of sentiment in coming months.

     Data published by Westpac-Melbourne Institute Wednesday showed consumer

sentiment fell 3.0% m/m to 100.5, the lowest since November last year. Sentiment

has been above 100 for 10 straight months.

     The latest decline was mainly due to increases in mortgage rates announced

by three of the four big banks in the last two weeks, and by a few smaller

banks. Political instability and household budget pressures were other factors.

     The rise in mortgages rates and increase in petrol prices to a 5.5-year

high are immediate factors putting pressures on household budget. Additional

factors include slow wage growth and declining house prices. 

     Views around housing deteriorated in September. The "time to buy a

dwelling" index fell 4.8%, giving back most of the 5.5% rise seen in August, and

reflecting the impact of rise in mortgage rates. House price expectations fell

3.0% to 109.4, the weakest read since December 2015.

     Together, these factors point to weak prospects for consumer spending -- a

risk the RBA continues to highlight.

     But the latest month also saw an improvement in labor market expectations

and that has the potential of at least partly offsetting household budget

pressures. Unemployment expectations fell 6.6% in September, reversing the rise

seen between May and August, and was 9.6% lower than a year ago. The improvement

in unemployment expectations was seen across all the major states but most

notably the mining states of Queensland (-10.9%) and Western Australia (-22.1%).

     The survey showed "interest rates" was the highest recall topic, and

sentiment among households with mortgages declined (-5.6%) more than the fall in

overall sentiment, indicating the sensitiveness of interest rates to consumer

sentiment. The other main topics with high recalls were "economic conditions",

"Budget and tax", and "politics."

     Westpac's chief economist Bill Evans maintained his view that the RBA will

leave the cash rate on hold in 2018, 2019 and 2020.

     From Westpac-Melbourne Institute Index of Consumer Sentiment for September

published Wednesday:

                                        September  August

---------------------------------------------------------

Sentiment Index                             100.5   103.6

Current-Conditions Index                    102.5   105.4

Expectations Index                           99.2   102.5

Family Finances Vs Year Ago                  85.2    88.3

Family Finances Next 12 Months              102.2   106.0

Economic Conditions Next 12 Months          100.2   100.3

Economic Conditions Next 5 Years             95.2   101.1

Good Time to Buy Major Household Items      119.7   122.4

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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