Job fears dent Westpac confidence index

Consumer confidence has sagged in December, giving up gains, as concerns about job losses hit a two-and-a-half year high.

Westpac’s Bill Evans points to evidence that rate cuts are having less impact this time. Picture: Alan Barber

Consumer confidence has sagged in December, giving up around half of the prior month’s gains as concerns about job losses rose to a two-and-a-half year high.

The latest Westpac-Melbourne Institute, released on Wednesday, showed sentiment fell 1.9 per cent to 95.1 points in December, remaining below the 100-point neutral mark for the sixth consecutive month.

The fall brings the index closer to its more than four-year low of 92.8 points hit in October.

It comes as the survey’s index of unemployment expectations rose 1.1 per cent to 138 in December, to a two-and-a-half year high, up 14.1 per cent from the same time last year.

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Westpac chief economist Bill Evans said the poor performance on consumer confidence was “broadly consistent” with the sharp deterioration in consumer spending during the September quarter and signs of weak retail conditions in the December quarter.

“The index has fallen 6.1 per cent since the Reserve Bank started cutting the cash rate in June and has been below the 100 level, indicating pessimists outnumber optimists, throughout the second half of the year,” Mr Evans said.

Consumers’ shift towards risk aversion continued, with 64 per cent of respondents nominating deposits, superannuation or paying down debt as the best place for savings, up from 62 per cent in November.

Meanwhile, responses to additional questions on news recall showed the highest recall for the month was for news on “interest rates”.

“Here the results were surprising,” Mr Evans said. “This is further evidence that the rate cuts in this cycle have had a much less positive impact on consumers than in past cycles.”

Responses to news articles on interest rates when the RBA cut rates between November 2011 and August 2016 indicated a 50/50 mix between respondents perceiving a rate slash as favourable or unfavourable.

The latest three cuts have pushed the mix of favourable/unfavourable responses to 30/70, indicating a less positive impact on consumer sentiment.

Mr Evans said all components of the index declined in December.