Consumers' pessimism eases a bit this month – new report

Economist explained some factors affecting consumers' feelings about the economy

Consumers' pessimism eases a bit this month – new report



The new Westpac–Melbourne Institute Consumer Sentiment Index report shows that there has been just a marginal improvement in consumers’ sentiments toward the economy. It rose by 1.8% in June to 83.6 percentage points (ppts) compared to last month’s 82.2 ppts.

“Despite the improvement, consumer sentiment remains below its March level and still firmly in deeply pessimistic territory,” said Westpac senior economist Matthew Hassan (pictured above). Consumer sentiment statistically measures the overall health of a country’s economy based on consumers’ opinions.

Hassan explained that, at 83.6, the Index remains well below” the “neutral” level of 100, meaning pessimists outnumber optimists by nearly 20ppts.

“The survey detail suggests positives from fiscal support measures are being negated by increased concerns about inflation and the outlook for interest rates,” Hassan said.

The economist also said that the new consumer sentiment index shows that news reports about the economy have a deep impact on consumers’ perceptions regarding current Australia’s economic situation.

“Two topics stood out in June: ‘budget and tax’ and ‘inflation’, with nearly half of [the] consumers recalling news on each of these,” Hassan said. “On the former, the news was viewed as less unfavourable than in March, reflecting the well-received Commonwealth budget, the cost-of-living measures delivered by both Federal and state governments, and the stage 3 tax cuts set to commence on July 1. However, the news on inflation was viewed as less favourable than in March, with assessments retracing most of the way back to the levels seen in December, when the RBA had just raised the cash rate in response to persistently high inflation.”

Hassan said the headline Consumer Sentiment Index is a composite and a combination of five sub-indexes that are based on responses to five specific questions. He said these sub-indexes point to a mix of pressures impacting consumers, improved assessments of family finances, and buyer sentiment offset by renewed concerns about the economic outlook.

“The ‘family finances vs a year ago’ sub-index recorded a particularly strong 9.7% lift in June. However, at 69.3 it remains at a very weak, deeply negative level. This sub-index would need to rise by another 20% just to reach its long-run average level, and by over 40% to get back to the ‘neutral’ level of 100,” Hassan said.

“Similarly, the ‘time to buy a major item’ sub-index also recorded a solid 4.2% rise but remained at a very weak level of 79.7, well below its long-run average of 124.”

Hassan said that while pressures on family finances and purchasing power are starting to ease, there is a need for bigger, double-digit gains in the said sub-indexes before we could start to say that these issues have convincingly subsided.

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