Australian Consumer Sentiment Improves Marginally in September- Westpac

By Ambar Warrick

Investing.com-- Australian consumer confidence improved slightly in early-September, a survey by Westpac Banking Corp (ASX:WBC) showed on Tuesday, as strength in the labor market helped offset headwinds from high inflation and interest rates.

The Westpac Melbourne Institute Index of Consumer Sentiment rose by 3.9% from 81.2 in August to 84.4 in September, the bank said in a statement. While the index logged its first gain in 10 months, it still remained near historic lows.

The reading comes despite the Reserve Bank of Australia’s commitment to keep raising interest rates, after a sharp hike earlier in September. Inflation is also trending around 20-year highs in Australia.

But strength in the labor market- particularly in the availability of jobs- has kept consumers somewhat positive. Australia’s unemployment rate sank to near 50-year lows this year, amid growing labor shortages in the country. Consumers also expect unemployment to shrink further in the coming months, Westpac said.

But with stagnant wage growth, rising interest rates and continued pessimism over the housing market, consumer sentiment is expected to stay subdued in the coming months.

“Confidence is only likely to see sustained gains once there is convincing evidence that the inflation threat is easing and the relentless rise in interest rates is nearing an end,” Bill Evans, Chief Economist at Westpac wrote in a note.

“History instead suggests confidence may be reaching something of a natural floor – a deeply pessimistic level but stopping short of the despair that can take hold when a deep recession causes widespread upheaval in labor markets.”

Still, Australia’s economy roared back into expansion this year, after the country relaxed all COVID-related restrictions. This momentum is expected to continue for the remainder of the year, barring headwinds from a slowdown in major trading partner China.

Westpac’s survey also found that consumers grew slightly more positive over housing prices, although this increase was mostly relegated to states that saw the biggest drop in prices this year.

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