​Are we becoming a nation of pessimists?

by Adam Smith18 Sep 2014
Consumer sentiment remains stubbornly low. When will Aussie buyers begin to cheer up?

Australians are dour. Our outlook on the economy, on our personal finances and on the future of the nation is grim. So, when will we finally show some signs of optimism? Is there a light at the end of the tunnel for consumer sentiment? It appears so, but for now we remain a nation fixated on the negative.

The latest Westpac Melbourne Institute of Consumer Sentiment edged up slightly in July, climbing 1.9% from 93.2 in June to 94.9. The result puts the index only 2% above its low in May, and 14% below its most recent high in November 2013. The index is now 10% below its 2013 average. A rise in sentiment might normally be seen as a positive, but the 1.9% rise was anaemic compared to economists’ expectations.

“This is another disappointing result for the Index. We had expected a stronger bounce back in the index following its 7% tumble in the aftermath of the Commonwealth Budget in May,” Westpac chief economist Bill Evans said.

Even two months after the Budget was revealed, it remains front of mind for the Australian consumer. And even with two months to sell the benefits of its austere money-saving measures, the government has failed to convince households that there’s much to cheer in the Budget. Evans said the survey tracked “news recalled”, and found that the Budget was still the top issue consumers were thinking about.

“This part of the survey is only conducted quarterly. A record 74% recalled news on ‘Budget and taxation’, the highest ever recall rate for this issue, swamping other news items such as ‘economic conditions, ‘employment’, ‘interest rates’ and ‘international conditions’. The recollections last month were extremely unfavourable and are likely to have remained that way,” he said.

It’s not just the content of the Budget that’s rattling consumers, Evans suggested. It’s also the wait-and-see period Australians must suffer through before any certainty that the Budget’s measures will come to bear on their finances.

“A significant number of the unpopular savings measures in the Budget appear to be opposed by the Opposition and the minority parties in the Senate. It may be some time before households get some clarity around the final state of the Budget. We have seen a 0.5% contraction in retail sales in the March-May period and this uncertainty may be a key reason for that slowdown,” Evans said.


Businesses are also displaying a grim outlook. 

Roy Morgan Research’s latest Business Confidence survey has revealed business confidence fell 5.4% from May to June, a decline the research firm said also reflected the continuing dampening effect of the Federal Budget.

Business confidence is now 20.7% below its peak in October 2013 following the Federal Election, and at its lowest level since June 2012.

The decline was driven by a dwindling proportion of businesses who said they believed economic conditions in Australia would improve over the next five years. This measure is now at its lowest level since August 2011.


Pessimism has a way of breeding pessimism, but Evans said there is hope that consumer sentiment will turn around in the year ahead.

“Overall a solid recovery in confidence is still the most likely prospect over the course of 2014 as concerns over the Budget gradually fade,” Evans said.

And Australians are already becoming gradually more optimistic about their own financial position, Evans said. 

“Views around family finances improved. The sub-index tracking assessments of ‘family finances relative to a year ago’ improved by 1.9%. The sub-index on the ‘one year outlook for finances’ posted an even stronger 12.3% rise,” Evans said.

Unfortunately, this strong rise didn’t erase a precipitous 23% decline in the “one year outlook for finances” sub-index, Evans said. But he said economic fundamentals will eventually sway consumers toward a sunnier outlook.

“We expect that high savings rates, strengthening household balance sheets and a surge in residential building will all support a solid lift in spending as the recovery in consumer confidence comes through.”

This feature is from Issue 11.14 of Australian Broker. Download the issue to read more!