Australia: Consumer Sentiment Index back in optimistic territory - Westpac

Australia’s Westpac–Melbourne Institute Consumer Sentiment Index has rallied 4.9% since Jul to be at 101.4 in Oct, back in optimistic territory above the 100 line for the first time since Nov last year, notes Matthew Hassan, Senior Economist at Westpac. 

Key Quotes

“An improving global economy, easing concerns about interest rates and overheating housing markets and an ongoing lift in labour market conditions have been the main positives.”  

“Despite the lift, sentiment remains near average levels rather than strong. Views on family finances remain a clear weak spot, a concern given the clear links this sub-index has with actual household finances and spending decisions.”   

“Updated responses on where consumers see the ‘wisest place for savings’ show risk aversion continuing to rise, the proportion nominating ‘pay down debt’ rising to 23.5% and the proportion nominating ‘real estate’ falling to a new 40yr low.” 

“The Westpac Risk Aversion Index edged up from 44.2 in Jun to 47.5 in Sep, a new record high. Despite this, there are so far no signs of an increase in precautionary saving or moves to reduce leverage.”

“CSI±, our modified sentiment indicator that we favour as a guide to actual consumer spending, posted a more muted 1.1% gain between Jul and Oct and continues to point to significant downside risk to demand near term.”

“The sub-index on ‘time to buy a major item’ is largely unchanged after a choppy few months. It suggests the sluggish spending growth evident through most of 2017 is likely to extend through to year end.”

“Consumer views around housing remain downbeat. The ‘time to buy a dwelling’ index has stabilised at weak levels, the state measures pointing to more weakness ahead in NSW and Vic.”

“The Westpac-Melbourne Institute Consumer House Price Expectations Index dipped 1% to 140.5. The index still shows price expectations in firmly positive territory but the state breakdown shows cooling expectations in NSW and WA.”

“In contrast to the weak detail elsewhere, consumer expectations for the labour market continue to improve and are again hinting at a ‘break-out’, The Westpac-Melbourne Institute Unemployment Expectations Index fell 5% over the 3mths to Oct (recall that lower reads mean more consumers expect unemployment to fall in the year ahead). At 129.2, the index is at its lowest level since Jun 2011 with gains broadly based.”