Australia’s Consumer Confidence Improves in June but Remains Negative Due to Inflation and Interest Rate Concerns
Consumer confidence in Australia showed a slight improvement in June but remained deeply negative, according to the latest survey data from Westpac. The Westpac-Melbourne Institute Consumer Sentiment Index increased to 83.6 in June from 82.2 in May.
Despite this uptick, the index remains well below the neutral mark of 100, indicating that pessimists still outnumber optimists. “The survey details suggest that any positives from fiscal support measures are being overshadowed by growing concerns about inflation and the outlook for interest rates,” commented Westpac Senior Economist Matthew Hassan.
Notably, the ‘family finances vs a year ago’ sub-index experienced a significant 9.7 percent increase in June, reaching 69.3. However, it still signals weak consumer sentiment. Similarly, the ‘time to buy a major item’ sub-index rose by 4.2 percent but stayed at a low 79.7. The ‘family finances next 12 months’ index saw a modest rise of 0.4 percent to 96.5.
The survey highlighted increasing consumer unease about the short-term economic future. The ‘economic outlook, next 12 months’ sub-index fell by 5.7 percent to 78.5, its lowest level since October of the previous year. In contrast, the ‘economic outlook, next 5 years’ sub-index improved by 2.1 percent to 94.1, indicating slightly less pessimism about the longer-term view.
Additionally, the Westpac-Melbourne Institute Mortgage Rate Expectations Index, which reflects consumer expectations for variable mortgage rates over the coming year, surged by 6.2 percent to 141.2, the highest reading since the beginning of the year.
The survey also suggested rising concerns about unemployment, with the Westpac-Melbourne Institute Unemployment Expectations Index increasing by 2.5 percent to 133.1, moving further above its long-term average of 129. Meanwhile, the Index of House Price Expectations climbed by 1.7 percent to 163.8, matching the peak levels seen in early 2021.
The Reserve Bank of Australia’s board is scheduled to meet next on August 5 and 6, with Westpac anticipating that the official cash rate will remain unchanged.
Anneke Thompson, Chief Economist: “The June 2024 Westpac Consumer Sentiment Index rose by 1.7 per cent to 83.6. However, at this level, consumer sentiment is still in deeply negative territory. Consumers did report some gains in sentiment on two specific ‘sub-index’ measures, family finances vs a year ago and time to buy a major household item. It seems that consumers have factored in upcoming tax cuts and cost of living budget measures in their response. However, even with small gains in sentiment in these areas, they remain deeply negative.
“Consumers reported declines in sentiment on the economic outlook for the next year, time to buy a dwelling and the unemployment expectations indices. Overall, this means that while consumers appear to be aware they will have some extra cash in their pay packets come FY 2025, the softening labour market and economic conditions remain major concerns. Tax cuts alone will not be enough to lift consumer spending to any great degree.
“CreditorWatch’s Business Risk Index (BRI) for May 2024 reports increasing insolvency rates in every industry except one (Information, Media and Telecommunications) over the past year. Further, Business to Business (B2B) Trade Payment Defaults reached another record high in May, the third time a record has been reached in calendar year 2024. Clearly, cash flow is stretched right across the industry spectrum, with the food and beverage sector experiencing the most challenging conditions as consumers choose to eat out less and adhere to tighter budgets. Today’s Westpac Consumer Sentiment results point to continuing challenges for the economy going forward, despite upcoming tax cuts filtering through to pay packets in July.”
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