Consumer confidence continues its remarkably steady run in October

Consumer sentiment has improved marginally in October, extending a remarkably stable run over the past six months.

Shoppers on Sydney’s Pitt St Mall. (Picture: Toby Zerna)

Consumer sentiment has improved marginally in October, extending a stable run over the past six months despite mixed signals on the crucial housing market.

The Westpac Melbourne Institute Index of Consumer Sentiment revealed a modest 1.1 per cent improvement to 102.4 in October, up from 101.4 in September.

“Over the last six months the index has held within a relatively tight 4 per cent range with five of the six readings hovering just above 100 indicating that optimists have remained slightly in the ascendancy,” Westpac chief economist Bill Evans said.

“This has been despite some significant local events including two rate cuts from the Reserve Bank; a very close election result and the aftermath of the May budget.”

Over the past year, the index has improved 4.9 per cent, with the gains entirely linked to the ‘expectations component’ as current conditions are seen steady.

The confidence in the economic outlook appears tied in part to a steady labour market, with unemployment expectations ticking down marginally over the past month and showing stability through 2016.

Other sub-components of the index were largely steady, with current family finances weakening marginally by 0.4 per cent and the view on ‘time to buy a major household item’ falling by the same amount.

The figures are not flattering for retailers at a time when business confidence indicators suggest the sector is struggling, although the view on ‘time to buy a major household item’ is up significantly this year.

Commentary around a recent jump in house prices has weighed on expectations among consumers, with a 3.3 per cent slide in the ‘time to buy a dwelling’ index.

This follows another push higher in property prices through the June quarter and amid talk that a potential apartment glut could weigh on the entire residential property sector from next year.

“There was a particularly sharp fall in the NSW index — down by 10.5 per cent, with the Sydney index down 18.6 per cent,” Mr Evans said.

“However if we consider the average of the ‘time to buy’ index over the last six months, relative to the same period a year ago, the index is around 2 per cent higher. In the case of the volatile index in NSW, we can see a 14.7 per cent improvement, while the Sydney index has improved over that period by 34 per cent.”

The rise in house prices appears to be key to the weakening interest in buying a property rather than fears about a bubble bursting, with house price expectations improving 1.6 per cent through October.

Over the past year, expectations on dwelling prices have surged 12.1 per cent, with NSW leading the way from Western Australia, Queensland and Victoria.

“With vacancy rates rising and prices falling in Perth we had been surprised by the resilience in respondents’ expectations for prices in WA, although this month we have seen a disturbing 16 per cent fall in expectations in one month,” Mr Evans said.

“While the results of today’s report point to some short term deterioration in housing sentiment, the longer term picture is clearly still positive.”