Consumer confidence rises on expectations interest rates will stay low
Consumer sentiment has recovered most of a post-Christmas dip, with economists attributing the rebound to a change in views on interest rates, with most people now expecting rates to remain on hold or fall.
- Consumer confidence rose 4.3 per cent between January and February, taking it back to positive territory
- Less than 43 per cent of Australians now believe that interest rates will rise over the next year, down from about half in August
- Expectations around property prices are at fresh record lows
The widely watched monthly Westpac-Melbourne Institute survey showed a 4.3-per-cent rise in confidence back to 103.8 in February, after it had dipped sharply in January.
Last month’s reading of 99.6 was the first time since late 2017 that pessimists had outnumbered optimists, albeit only slightly.
Westpac senior economist Matthew Hassan argued the improved mood was largely due to a shift in stance on interest rates by the Reserve Bank last week.
“The survey was in the field over the week ended February 9,” he wrote in the report.
“That week saw a significant shift from the RBA, with the governor giving a clear signal that the bank now has a more evenly balanced view on the next move on rates, compared to the ‘next move likely to be higher’ assessment that it maintained throughout 2018.”
Mr Hassan said a half-yearly question on consumers’ interest-rate expectations highlighted a shift in outlook for many people.
“Back in August, about half of Australians expected rates to rise over the next 12 months,” he noted.
“That proportion fell to just below 43 per cent in this month’s survey, the lowest reading since August 2016, the last time the RBA cut official interest rates.
“The February survey also showed a strong 7.4-per-cent lift in sentiment amongst consumers with a mortgage, another indication that diminished rate-rise fears have been a support.”
Housing slowdown not hurting confidence … yet
A key reason cited by the Reserve Bank and other economists as to why interest rates may fall rather than go up over the next year or so is that consumer spending has weakened in the face of falling house prices, especially in Sydney and Melbourne.
However, Mr Hassan observed there was no sign so far in Westpac’s survey those housing declines were causing widespread panic in those regions.
“Confidence continues to bear up well in the face of significant headwinds,” he wrote.
“In particular, the continued house-price correction, concentrated in Sydney and Melbourne, is impacting consumer expectations for house prices but so far appears to be having only limited spill-over effects on wider confidence.
“Sentiment amongst consumers in NSW and Victoria is holding up well, averaging in line with the readings nationally. Even views around family finances in these two states are on a par with or slightly better than their interstate peers.”
Consumers are increasingly convinced there is no end in sight to house-prices declines, with the index of house-price expectations dropping 8.4 per cent to 87.8 — that is the lowest level since Westpac started compiling this index in May 2009.
“Weakness remains more pronounced in NSW and Victoria, with just over half of consumers in these states expecting prices to be lower in a year’s time,” Mr Hassan observed.
“That said, the more positive views in other states are also starting to show signs of softening with notable pull-backs in price expectations in Queensland and WA.”
That continues to weigh on consumer views of whether now is a good time to buy a major household item, even though people’s views on their household finances picked up over the past month.
Australians also remain confident of keeping their jobs, with unemployment expectations at a seven-year low, even as businesses revised down their expectations around employment in the NAB survey out yesterday.