Cost of living worries weigh on households, according to Westpac survey as NAB report shows business trading conditions ‘roaring’

Despite the grim picture revealed in Westpac’s latest survey, NAB’s report showed business trading conditions were ‘roaring’ as consumer spending continues to boom.

Climbing household energy and food bills, surging interest rates, and fears about the economy has pushed consumer confidence nearer to historic lows – but the picture would have been much worse had the Reserve Bank not slowed down the breakneck pace of rate hikes last week.

Westpac’s latest survey revealed the monthly consumer sentiment index dropped a further 1 per cent to below 84 points, far below the 100-point threshold where the number of optimists equals the number of pessimists.

Westpac chief economist Bill Evans said “the index remains in deeply pessimistic territory at a level comparable to the lows briefly reached during the pandemic and the extended weakness experienced during the Global Financial Crisis”.

In sharp contrast and despite the dire pessimism among consumers, the mood among companies across the country and industries remained buoyant as trade “roared” in September, according to NAB’s latest monthly survey of businesses.

NAB chief economist Alan Oster said “conditions are now higher than their pre-Covid peak, which shows just how strong demand is at present”.

“The current level of conditions are only exceeded by the post-lockdown surge in early 2021,” Mr Oster said.

The sharp contrast between corporate cheer and household gloom has been a hallmark of recent months, with economists expecting that business conditions will begin to deteriorate in coming months as higher interest rates and inflationary pressures finally begin to weigh on spending.

Climbing household energy and food bills, surging interest rates, and fears about the economy has pushed consumer confidence nearer to historic lows. Picture: David Mariuz/NCA NewsWire

New figures from the Australian Bureau of Statistics showed household spending in August lifted for the 18th consecutive month to be 20 per cent higher than a year earlier, and 15 per cent above pre-pandemic levels.

“Clearly, consumers are still finding a way to keep spending, with the very strong labour market, savings buffers and a broader post-pandemic recovery all playing a role,” Mr Oster said.

The details of Westpac’s household survey showed households remained deeply gloomy about their financial prospects, but that this was little changed from September.

Mr Evans said “there is unlikely to be much near-term respite on the cost of living”.

“We expect inflation, which is currently printing at 6.1 per cent, to lift to 7.6 per cent by year’s end,” he said.

The biggest moves were in views on the economy over the coming 12 months, with the subindex measuring this component down an outsized 4 per cent as Jim Chalmers’ repeated warnings of a global downturn further dampened the mood among households.

“Some of this likely reflects rising concerns in the media and official circles that Australia and other developed economies may be headed for recession,” Mr Evans said.

Mr Evans said a key finding in the latest report was that “the October result could have been significantly worse if the Reserve Bank had chosen to raise the cash rate by 50bps instead of the 25bp it delivered”.

The October survey was conducted over the four days to October 6 – a period which included the Reserve Bank hiking from 2.35 per cent to 2.6 per cent on October 4.

“Sentiment amongst those sampled before the RBA decision showed a depressing 77.4 index read, down 8.3 per cent from the print in September,” Mr Evans said.

“If this had been the overall result for the month it would have been the second weakest since the early 1990s recession, the only weaker read in recent times being when the pandemic shock hit in April 2020,” he said.

“Clearly, respondents were extremely concerned heading into another prospective 50bp increase in the cash rate.”