Contrary to expectations, consumer confidence has entered pessimistic territory after the Reserve Bank of Australia (RBA) dropped the official cash rate to the new record low of 1.25 per cent earlier this month, the latest Westpac-Melbourne Institute survey has revealed.
“Responses collected before the June 4 decision had a combined index read of 106.8. Those collected after had a combined read of 95.5, with daily results showing a further softening after the weak GDP report,” Westpac senior economist Matthew Hassan wrote in the report.
Interestingly, the prospect of a rate cut by the RBA had helped lift consumer confidence to 103.8 in February.
“This is a disappointing result given the cut in official interest rates this month and suggests deepening concerns about the economy have outweighed the initial boost from lower rates,” the Westpac-MI report for June states.
While the RBA rate cut didn’t improve perceptions of the economy, views on whether it’s a good time to purchase a home increased by 1.8 per cent over the month and 10.6 per cent over the year to 116.9 in June, according to the Westpac-MI report, which polled 1,200 Australians between 3 June and 7 June.
Meanwhile, the outlook for house prices skyrocketed by 22.7 per cent over the month from 89.4 to 109.7, but remains 8.6 per cent below the June 2018 index of 119.9.
Mr Hassan noted in the report that the unexpected 2019 federal election result drove a 7.5 per cent rise in confidence among Coalition voters, and a sharp 9.9 per cent decrease among Labor voters.
“The associated change in outlook for tax policy around investor housing also produced a strong lift in sentiment amongst consumers with an investment property (+9.5 per cent) and likely contributed to a fall in sentiment amongst renters (–5.3 per cent),” he wrote in the report.
“In contrast, sentiment amongst the mortgage belt showed a 2.8 per cent rise, the gain reflecting the cut in interest rates but a more muted response than in previous cuts (sentiment in this segment surged 7 per cent and 15 per cent following the previous cuts in 2016).”
Overall consumer sentiment fell 0.6 per cent over the month, and 1.4 per cent over the year, to 100.7. While the June index is below the 101.5 average, the figure is still in optimistic territory, as an index level greater than 100 suggests that optimism outweighs pessimism.
The overall decline was driven by the sub-index tracking expectations for the economy in the next 12 months, which fell 4.7 per cent over the month to 99.3 in June.
The report acknowledged the sluggish GDP growth recorded in the March quarter, which decreased to its slowest pace (1.8 per cent) since 2009 and well below the trend (2.75 per cent).
Consumers’ views on family finances compared to a year ago also showed a considerable decline in confidence, decreasing by 2.4 per cent over the month and 4.1 per cent over the year to 83.2 in June.
Perceptions on whether it’s a good time to purchase a major household item also decreased by 0.2 per cent over the month and 5.6 per cent over the year to 115.5 in June, according to the latest Westpac-MI survey.
However, the sub-index representing views on family finances over the coming 12 months rose by a “decent” 3.1 per cent month-on-month and 2 per cent year-on-year to 107 in June.
Survey respondents were also optimistic about unemployment, with the June sub-index increasing by 5.1 per cent over the month and 0.1 per cent over the year to 127.