As expected, Australian consumer sentiment has fallen to its lowest level in over two years, battered lower by a combination of negative media reporting, the slowdown in domestic spending by consumers, the noisy carbon tax debate and the worries about interest rates.
But of all the factors, it’s been the constant negativity in the media about politics, the carbon tax and other issues, the sluggish economy and the over interpreting of monthly economic figures.
While retail sales have been sluggish (See the David Jones story below), car sales have improved, there was significant jobs growth in June and housing seems to be emerging from a rut: all are usually good indicators of positive sentiment
But the monthly The Westpac-Melbourne Institute Index of Consumer Sentiment fell 8.3 in July to 92.8, from 101.2 in June.
It is the first time since June 2009; the index is now below its neutral mark of 100, meaning the proportion of pessimists outweigh the number of optimists.
It was also the weakest result for the index since May 2009, when the economy was emerging from the GFC and was being helped by the government stimulus spending (which helped boost sentiment higher as the year went on).
Westpac chief economist Bill Evans said in yesterday’s statement that it was a surprisingly weak result.
"The only other time in recent history when the index has been sustained around the current level was during the period following the GST introduction which also coincided with the bursting of the ‘dot com’ bubble," Mr Evans said.
"We then have to go back to the deep recession of the early 1990s for the next period of comparable weakness in the index."
Consumers appeared to be concerned about the European financial crisis, the ongoing impact of the seven interest rate rises between October 2009 and November 2010 and uncertainty about the introduction of the price on carbon, Mr Evans said.
"Not only is the level of the Index disturbingly low but the sheer magnitude of the fall is also remarkable," he said.
"We have seen 11 falls of this magnitude since the early 1990s recession but only two of them have been from a lower starting point (once again these occurred during that 2008 – 2009 period).
"Furthermore, such large falls have typically been associated with a major event such as an interest rate increase; a spike in petrol prices; the collapse of Lehmans; or recession fears.
"It must be stressed that this survey closed the day before the government’s announcement on the details of the decision to price carbon and provide an associated compensation package.
"There was one positive aspect to the survey. Confidence in housing picked up by 3.3% with the Index now at its highest level since January 2010.
"That may be the result of modest recent falls in house prices improving affordability.
"A special question associated with this survey showed that a majority of respondents still expect house prices to rise rather than fall although that majority has shrunk noticeably since we last asked the question back in April.
"Firstly, by far the largest fall in confidence (–11.1%), was in the highest income group.
"Of course, the government’s compensation package associated with the introduction of a price on carbon is least generous for those in the upper income brackets.
"Secondly, the confidence of those folks who have a mortgage plummeted by 16.5%.
"Despite the Reserve Bank keeping rates on hold following the Board meeting in July (until the last governor’s statement) the Bank has persisted with its strongly hawkish rhetoric.
"This is continuing to undermine confidence amongst households who it would appear are incredulous that such a policy is favoured given the current circumstances.
"All components of the Index fell in July," Mr Evans said.
