Westpac On Soft Consumer Sentiment Print

The local bank breaks down the details of the soft consumer sentiment print from earlier:

• "Westpac Consumer Sentiment Index down 2.4% to 82.4.
• Sentiment slump hits two-year mark, showing few signs of lifting.
• ‘Time to buy major item’ index falls back to extreme lows.
• Slightly firmer read on finances but expectations for economy slipping.
• Improving unemployment expectations a notable bright spot."

Westpac: " The pessimism that has dominated the consumer mood for nearly two years now is still showing few signs of lifting. The latest Index read is well below the ‘neutral’ level of 100, meaning pessimists outnumber optimists by over 15ppts. It is also in line with the average recorded over the last 24 months, marking an extended period of bleak sentiment reads by historical standards. Indeed, outside of the deep recession of the early 1990s, this is easily the second most protracted period of deep consumer pessimism since we began surveying in the mid-1970s, with all other sentiment slumps lasting nine months or less.

The absence of a sentiment recovery to date reflects the nature and duration of Australia’s inflation challenge. Consumer price rises have outstripped wage growth by 6ppts over the last three years. That has combined with a sharp increase in interest rates and a big lift in tax payments putting household incomes under intense, sustained pressure. The whole episode has also been relatively drawn-out as well – inflation still running above the RBA’s 2–3% target band three years on and giving little to no scope for either monetary or fiscal policy to provide material support.

In contrast, previous sentiment slumps have typically come from shocks to growth that did not have this inflation dimension. They ended more quickly as policy-makers were able to respond more quickly – either because inflation was less of a concern (during COVID, the GFC and the early-2000s slowdown) or a lower policy priority at the time (in the 1970s and 1980s)."