February sees bump in consumer sentiment

According to the Westpac-Melbourne Institute, the February editions of the Index of Consumer Sentiment came in at 95.5, up from 93.4 in January.

Despite the modest lift in sentiment, the index sits will below its long run average of 101.4 and remains firmly in the pessimistic territory, according to Westpac senior economist Matthew Hassan.

According to Mr Hassan, increasing consumer sentiment “likely reflects” the easing public concern following the ongoing national bushfire crisis, in light of extensive rainfall in bushfire-affected regions, which saw several large fires contained.

Other factors affecting improved consumer sentiment include the Reserve Bank of Australia’s decision to hold the official cash rate, showcasing a positive medium-term outlook for the domestic economy and reducing shock over the international outbreak of coronavirus, which has shown little impact on the Australian market.

The improved consumer sentiment in February was largely driven by bumps in the the sub-indices related to the economic outlook, as the “economy, next 12 months” sub-index rose by 5.4 per cent in February, while the “economy, next 5 years” sub-index rose by 4.3 per cent, with both indexes partially reversing the sharp falls seen over the last two months.

The sub-index for “time to buy a major household item” grew by 2.7 per cent in the month but sits at 1.3 per cent below its November 2018 level and 10.6 index points below its long run average, suggesting consumers are continuing to limit their discretionary spending.

However, the index showed that outlook on family finances has taken a dip in February, despite the RBA’s efforts to stimulate spending with interest rate cuts, recent tax cuts and an upturn in the housing market.

Sentiment towards the family “finances now versus a year ago” sub-index down 1 per cent since January, close to its recent low point, while the “finances next 12 months” index held steady at a low level.

Housing-related consumer sentiment remains mixed as the housing market continues to improve, according to Mr Hassan.

Buyer sentiment, recorded through the “time to buy a dwelling” sub-index, fell by 5.6 per cent in February, falling back close to its recent low point after a gain in January but remaining well above the 2017 lows, at the height of the previous property cycle.

The “house price expectations” index grew by 0.2 per cent in February, resulting in the index soaring by 70 per cent over the last nine months.

The index showed the house price expectations continue to lift in the country’s biggest markets, up 4.5 per cent in the month in NSW and up 1.7 per cent in Victoria.

In the nation’s smaller markets, expectations for property prices remain subdued, with Queensland reporting a 3.7 per cent drop in the index and Perth falling by 12.9 per cent in February.

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