Consumer sentiment back in ‘deep pessimism’: Westpac
Consumer confidence has fallen below the GFC’s low point, as those in mortgage belt areas report ‘intense pressure on finances’.
Consumer sentiment has fallen back into deep pessimism, according to Westpac.
The Westpac-Melbourne Institute Consumer Sentiment Index dived 6.9 per cent in February as hopes of a break from cost-of-living pressures and rate hikes have been dashed.
Sentiment is now back near historic lows – with a weaker read than was seen during the Global Financial Crisis.
“After a modest rally through the Christmas-New Year period, consumer confidence has
fallen sharply to be back near the historic lows seen last November,” Westpac senior economist Matthew Hassan said.
“Cost of living pressures and interest rate rises continue to weigh heavily.
“Hopes of some easing in both have been dashed by the strong December quarter CPI and the Reserve Bank’s resumption of its interest rate tightening cycle.”
February’s sentiment reading of 78.5 was a touch above last November’s read of 78.
It remained above the Covid-19 pandemic reading of April 2020, which plumbed 75.6, but was below the low point of the Global Financial Crisis, when sentiment hit 79.
More than half of consumers expect mortgage rates to rise by another 1 percentage point or more.
That expectation follows a warning from the Reserve Bank last week that it expects “further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.”
The RBA last week hiked its cash rate for the ninth straight month from 3.1 per cent to a 10.5-year high of 3.35 per cent
Consumers surveyed by Westpac reported “intense pressure on finances”, especially in the mortgage belt.
Attitudes towards major household purchases hit the fourth lowest in 48 years.
Confidence around jobs was still positive, but starting to get rattled again.
Interest rates were also a clear factor weighing on confidence in the month, with sentiment among those surveyed before the RBA rate hike last week relatively steady at 83.5, while sentiment among those surveyed afterwards dived to 74.8.
Mr Hassan said that given that the move was widely anticipated, the negative response likely “reflects the clear signal from the RBA Governor that further increases can be expected in the months ahead”.
More consumers now expect substantial follow-on rate rises, with 80 per cent of those surveyed after the RBA decision, expecting rates to move higher over the next year with 53 per cent expecting a rise of 1 per cent or more – up from 76 and 48 per cent respectively January.
RBA Governor Philip Lowe last week recognised some Australians were facing a “painful squeeze” due to higher rates and the increase in the cost of living, adding that households were also being impacted by a decline in housing prices.
Mortgage holders could soon see their repayments total $1800 more a month than in May 2022, when the RBA first started to lift rates to control surging inflation that rose to a 33-year high in December.
The Westpac index components showed a particularly big deterioration in views on family finances, the near-term outlook for the economy and whether now is a good time to buy a major household item.
“Most disturbing is the size of the hit to current finances,” Mr Hassan said.
“The ‘family finances versus a year ago’ subindex dropped 8 per cent in February, to just 62.1 – marking the weakest reading since the depths of the early-1990s recession.”
“The index read among consumers with a mortgage was just 55.4, down 14.4 per cent since January, among the bleakest responses on this question in the history of the survey, which goes back to the mid-1970s.
Consumers see no let-up in the year ahead, he added, with “family finances, next 12 months” subindex recorded a 6.7 per cent fall to 86.8.
“The mortgage belt again featured, with expectations for family finances in this subgroup dropping nearly 15 per cent to just 78.9,” Mr Hassan said.
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