Consumer confidence remains stuck in neutral

The latest measure of consumer confidence has edged only slightly higher, despite a raft of rate cuts.

The Westpac - Melbourne Institute Index of Consumer Sentiment rose 0.6 per cent in January, from 100 to 100.6.

That level indicates that optimists narrowly outnumber pessimists, and is the third month in a row the index has been at 100 or higher.

That compares with 14 of the previous 16 months when the index had been stuck below 100, in pessimistic territory.

However, Westpac's chief economist Bill Evans says the result is disappointing given some good news for many consumers over recent months.

"Despite a total of 175 basis points of rate cuts from the Reserve Bank since October 2011, the index is only 3.5 per cent above its level at that time," he observed.

"We saw a 4 per cent jump in the share market and the Aussie dollar strengthened further and, of course, the unemployment rate was reported to have fallen from 5.4 to 5.2 per cent, so there wasn't too much bad news around over the last month, and yet we haven't seen any sort of traction at all on the index, so that is a little disappointing and somewhat surprising." The main factor holding the overall index back was a deterioration in households' assessment of their own finances, even as their view of the economy's health improved.

Good time to buy In good news for retailers, the index of whether now is a good time to buy a major household item rose 4.7 per cent, which Westpac says may reflect the favourable exchange rate.

Real estate agents may also take heart from an 11 per cent rise over the past year in whether now is a good time to purchase a house.

Bill Evans says for the past four months that index has been near the highs of 2009, when national average house prices jumped around 14 per cent.

However, house price expectations have not matched, with less than half those surveyed expecting house prices to rise over the next year, slightly down from levels a year ago.

"Official data for new lending for housing indicates that upgraders and investors are responding to the lower rates in a broadly comparable fashion to 2009.

However, unlike in 2009, First Home Buyers have been reluctant to return to the housing market," noted Mr Evans.

"This is certainly partly due to less generous government subsidies but may also be impacted by weaker overall confidence around finances and job prospects." Mr Evans says he expects the Reserve Bank will cut interest rates at least once more in an effort to boost consumer sentiment, but that it may wait until the March meeting due to the strong recovery in iron ore prices that is boosting the nation's terms of trade and income.

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    0.9382+0.0023+0.25%
    AUDUSD=X
    0.5586-0.0011-0.19%
    AUDGBP=X
    0.6789+0.0012+0.18%
    AUDEUR=X
  • Commodities
    Commodities
    NamePriceChange% Chg