• The weekly ANZ-Roy Morgan consumer confidence index fell by 4.5 per cent last week to 80.3 points, the lowest level since April 2020. The long-run index average since 1990 is 112.2 points.
• The monthly Westpac-Melbourne Institute consumer sentiment index fell 3.0 per cent in August – a ninth consecutive monthly decline – to a two-year low of 81.2 points. Sentiment is down 22.0 per cent on a year ago. Confidence in regional or rural areas fell by 5.0 per cent in August to a record low of 72.8 points (lowest since January 1996).
• The household spending indicator from the Australian Bureau of Statistics (ABS) rose by 10.2 per cent over the year to June. Household spending increased by the most for transport (up 22.7 per cent), followed by hotels, cafes and restaurants (up 17.1 per cent). Spending in Queensland is 12.4 per cent higher over the year to June.

What does it all mean?

• Inflation and interest rate concerns continue to dominate consumer confidence surveys. The Reserve Bank (RBA) Board lifted the cash rate by 50 basis points (half of a percent) for an unprecedented third straight month last week, taking the official interest rate to 1.85 per cent – the highest level since April 2016. This also represents the most aggressive monetary policy action since 1994. The RBA is trying to rein-in soaring inflation, with annual growth in headline consumer prices accelerating to a 21-year high of 6.1 per cent in the June quarter.
• In the first of two consumer confidence surveys released today, sentiment, as measured by ANZ and Roy Morgan, fell by 4.5 per cent last week to a 27-month low of 80.3 points. The lift in borrowing costs dampened confidence among homeowners, down by 7.0 per cent last week, according to ANZ economists. The deepening downturn in the property market – with Sydney experiencing the sharpest fall in home values in around 40 years – also likely weighed on sentiment.
• All five confidence sub-indices fell last week. In fact, consumer views on ‘current economic conditions’ dropped by a massive 10.2 per cent to 60.7 points, the lowest level since September 2020. Sentiment fell by the most in NSW, South Australia and Western Australia, according to ANZ economists
• While historic-low unemployment and a large pool of excess savings continue to support household consumption, the souring of consumer confidence threatens to slow retail spending growth in the back end of 2022. Retail turnover eased in both NSW and Victoria in June as home price declines accelerated in both Sydney and Melbourne. The ANZ and Roy Morgan measure of whether it’s a good ‘time to buy a household item’ dropped by 4.0 per cent last week to 74.6 points – the second lowest level since April 2020.
• And in the second survey conducted by Westpac and the Melbourne Institute, consumer confidence fell by 3.0 per cent in August to a two-year low (lowest since August 2020) of 81.2 points.
• Worryingly, rural or regional Australia consumer confidence fell by 5.0 per cent in August to a record low of 72.8 points (the lowest level since January 1996). Sentiment has dropped by 27.2 per cent since March due to flooding on Australia’s East Coast and increased worries about the threat of imported foot-and-mouth disease to Australia’s beef industry. Bloomberg estimates that a potential outbreak of the disease could ravage Australia’s $32 billion livestock industry, with a potential estimated direct economic impact of around $80 billion.
• Despite this, Australia’s regional economy is in good shape with record low unemployment and near record high job vacancies, supporting consumer spending. Home prices lifted in several regions in July – including the Riverina, Murray, Darling Downs and New England – despite rising borrowing costs. And favourable seasonal conditions are continuing to underpin strong production and harvesting across Australia’s agricultural sectors. Trade conditions are challenging, but overseas demand for Aussie grains, beef, wine and citrus produce remains strong, supporting farm incomes.
• The monthly survey was conducted in the week August 1-4, 2022, capturing the RBA’s latest ‘jumbo’ rate hike. In response, Westpac economists said, “there are still a majority of respondents expecting rates to rise by at least 1.0 per cent [from the current official cash rate of 1.85 per cent.]” But, “the proportion of of respondents expecting rates to rise by 1.0 per cent or more over the next 12 months did fall from 72.8 per cent in July to 57.6 per cent [in August].”
• Unsurprisingly, confidence for surveyed respondents holding a mortgage dipped by 8.9 per cent in August, as the lift in borrowing costs and mortgage repayments began to bite. Sentiment amongst those who do not have a mortgage fell by a more modest 2.1 per cent in the month. And rising term deposit and savings rates may have boosted sentiment for Aussies aged 45 years and over that are debt-free with confidence up 0.8 per cent in August.
• The underlying sub-indices were mixed in August. The biggest falls were for consumer views on ‘economic conditions over the next 12 months’ (down 8.0 per cent) and whether it is a good ‘time to buy a major household item’ (down 8.4 per cent). And consumer views on ‘house price expectations’ fell by 7.5 per cent.
• That said, Aussie consumers remain confident about the labour market with the Westpac-Melbourne Institute ‘unemployment expectations’ index at very low levels, falling (improving) by 5.8 per cent in August to 103.4 points, well below the long-run average of 129.5 points. The national unemployment rate hit 48-year lows of 3.5 per cent in July.
• A measure of household spending compiled by the Bureau of Statistics (ABS) shows that household spending rose by 10.2 per cent over the year to June. Spending increased by the most on transport (up 22.7 per cent), followed by hotels, cafes and restaurants (up 17.1 per cent), and clothing and footwear (up 16.3 per cent). By state, spending rose most in Queensland (up 12.4 per cent), followed by Victoria (up 11.8 per cent) and Tasmania (up 10.8 per cent) through the year.

What do you need to know?

Weekly consumer sentiment – August 7

• The weekly ANZ-Roy Morgan consumer confidence index fell by 4.5 per cent to 80.3 points, the lowest level since April 2020. The long-run average since 1990 is 112.2 points. All five major sub-components fell last week:

Monthly consumer confidence – August

• The Westpac-Melbourne Institute consumer sentiment index fell by 3.0 per cent in August – a ninth consecutive monthly decline – to a two-year low of 81.2 points. Sentiment is down 22.0 per cent on a year ago.
• Three of the five major components of the index fell in August.

• Of the other key sub-components in August:
  • The ‘time to buy a dwelling’ index fell by 2.3 per cent to 78.2 points.
  • The ‘house price expectations’ index dipped by 7.5 per cent to 97.1 points.
  • The ‘unemployment expectations’ index fell (improved) by 5.8 per cent to 103.4 points.
• The survey was taken over the period August 1-4, 2022.

ABS household spending indicator – June

•  The Australian Bureau of Statistics (ABS) has released the June data of its household spending indicator. The measure utilises data from banks on credit and debit card activity.
  • Household spending increased by 10.2 per cent through the year to June, current price, calendar-adjusted.
  • Through the year, household spending increased for both services (up 15.9 per cent) and goods (up 5.0 per cent).
  • Through the year, both discretionary (up 10.8 per cent) and non-discretionary (up 9.8 per cent) spending increased.
  • By category, spending increased by the most for transport (up 22.7 per cent), followed by hotels, cafes and restaurants (up 17.1 per cent), and clothing and footwear (up 16.3 per cent).
  • By state, spending rose most through the year in Queensland (up 12.4 per cent), followed by Victoria (up 11.8 per cent) and Tasmania (up 10.8 per cent).

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