The Westpac/Melbourne Institute index of consumer confidence rose by 4.1 per cent in February to a reading of 101.1.
- Sentiment levels are still down 5.2 per cent on a year ago. While the 12-month rolling average of the consumer sentiment index hit a 28-month low of 98.9 in February.
- The decision by the Reserve Bank to keep interest rates on hold resulted in “tenants” being a lot more optimistic (up 6.2 per cent) than “households with a mortgage” who were decidedly pessimistic (down 5.4 per cent).
- Sentiment rose in three of the five states with NSW (up 3.2 per cent), Queensland (up 4.1 per cent), and South Australia (up 0.5 per cent). Sentiment fell in Western Australia (down 9.1 per cent) and Victoria (down 7.9 per cent).
What does it all mean?
- While consumer confidence rose over the month, the latest result can only be categorised as mixed. Not only did confidence fall across a couple of the key states but sentiment levels are crawling off a sustained period of weakness. In fact the 12-month rolling average of the consumer sentiment index hit a 28-month low in the latest reading. Far more improvement is required to justify a turnaround in consumer perceptions.
- Keep in mind the latest improvement comes after a period where everything has gone right over the past couple of months. A stronger Aussie dollar, rising share markets, two rate cuts and a modest improvement in the outlook for the global economy have supported confidence levels.
- Interestingly the decision by the Reserve Bank to keep interest rates on hold last week played a big part in the latest result, with confidence receiving a boost from respondents who are renting, and were far more optimistic than respondents with a mortgage. It is important to highlight that just one third of Australians have a mortgage and as such rate cuts have a varied impact across households.
Overall it is clear that the ongoing global economic troubles will dominate consumer thoughts and it is likely to entrenched the current level of cautiousness. As such we still expect the Reserve Bank to cut interest rates, particularly in light of the latest out of cycle lift in variable rates by the domestic banks.
What do the figures show?
- The Westpac/Melbourne Institute index of consumer sentiment rose by 4.1 per cent in February after a 2.5 per cent rise in January. The consumer sentiment index is down 5.2 per cent on a year ago. But the 12-month rolling average of the consumer sentiment index hit a 28-month low of 98.9 in February.
- The current conditions index rose by 3.8 per cent, while the expectations index rose by 4.4 per cent.
All five components of the index rose in February:
- The estimate of family finances compared with a year ago rose by 7.0 per cent
- The estimate of family finances over the next year rose by 2.6 per cent
- Economic conditions over the next 12 months was higher by 0.9 per cent
- Economic conditions over the next 5 years rose by 9.9 per cent
- The measure on whether it was a good time to buy a major household item rose by 1.8 per cent.
What is the importance of the economic data?
Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
What are the implications for interest rates and investors?
Consumers still harbour reservations about what lies ahead and if consumer sentiment doesn’t lift markedly over the next few months, retailers and policymakers alike would have a genuine reason to be very worried. CommSec expects the Reserve Bank to cut interest rates once again in May in an attempt to shore up domestic confidence.