Consumer Sentiment

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<p>GUEST OBSERVER</p>
<p>An election may be just over a month away, but it is so far, so good for the economy. Consumer confidence hasn’t fallen in the past four weeks, and hopefully that means that people are just quietly getting on with life. Usually election periods are viewed with suspicion – with uncertainty about the likely outcome causing people to delay spending, investing or hiring staff.</p>
<p>But consumer sentiment remains positive and above long-term averages. Importantly, the outlook for family finances remains well above long-term averages.  </p>
<p>In terms of consumer confidence, the Reserve Bank is keenly focussed on the outlook for family finances. Simply, if the outlook for finances is positive, consumers are more likely to spend. The good news is that Aussie consumers positively view the outlook for their finances with the latest survey result not far off the best level seen in six years.  </p>
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<p>The Reserve Bank Governor covered a lot of ground at today’s question and answer “unplugged” session. Amongst the topics discussed were inflation and inflation targeting; China’s economic transition; industries of the future; household finances; and the supply of housing and home prices. The key takeaway is that while growth is good – but could be better – and unemployment has come down, inflation is too low. That by itself doesn’t point to lower rates ahead. The Reserve Bank Governor also indicated his belief that inflation will eventually lift and be back in the 2-3 percent target band.  </p>
<p>The Reserve Bank Governor noted that ‘leverage’ was a factor being monitored closely when assessing the state of the housing market. While households were holding more debt and were doing a good job with managing their finances, the Reserve Bank Governor indicated that debt couldn’t continue to rise much further from current levels.  </p>
<p>Asked about what industries will provide future economic growth, Governor Stevens said that growth would come from a variety of places. He indicated for that to happen it was important to have the “right overall policy settings”. Policy settings include the labour market, competition policy as well as those encouraging innovation and risk taking.  </p>
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<p><span>What do the figures show? </span></p>
<p><span>Consumer confidence </span></p>
The ANZ/Roy Morgan consumer confidence rating rose by 0.5 per cent to 115.7 in the week to May 22. Confidence is up 1.9 per cent over the year, up 3.6 per cent over the past four weeks and above the average of 112.1 since 2014. Three of the five components of the index rose in the latest week:</div>
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<div class="column">The estimate of family finances compared with a year ago was up from +4 to +5;<br>The estimate of family finances over the next year was up from +26 to +29;<br>Economic conditions over the next 12 months was unchanged at +3;<br>Economic conditions over the next 5 years was down from +10 to +7;</div>
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<div class="column">The measure of whether it was a good time to buy a major household item was up from +33 points to +34 points.</div>
<div class="column">Reserve Bank Governor Remarks
<p>The appearance by the Reserve Bank Governor was termed an “unplugged” session – involving him answering questions from a facilitator as well as the audience.</p>
<p>The Reserve Bank Governor reiterated his defence of the current 2-3 per cent inflation target band.</p>
Governor Stevens suggested there would be “quite some years of hard repair work ahead” for the Federal Budget.</div>
<div class="column">The Australian economy was regarded in good shape: growth was good, but could be stronger; unemployment had fallen and had been better than the Reserve Bank expected a year ago; but inflation was too low.</div>
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<br>The Reserve Bank Governor said that China was "making reasonable progress" with the shift from manufacturing to services and consumption-led growth.<br>The Aussie dollar was currently "doing what you expect it to do". The Governor seemed comfortable with the current level of the currency.</div>
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<div class="column">While a lot of housing supply was set to come on to the market, the Governor noted that this was necessary as for a period of time not enough homes were being built. If the lift in housing supply met the level of demand with little change in prices, the Governor noted that this was the desired outcome from an economic standpoint. He didn’t make any observation on future home prices. He repeated his advice, though, that Aussie home buyers and owners shouldn’t expect that home prices would always rise.<br><p>The Reserve Bank Governor noted that leverage was a key issue when assessing the current state of the housing market.</p>
<p>What is the importance of the economic data?</p>
<p><span></span><span>The ANZ/Roy Morgan weekly survey of consumer confidence </span><span>closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank. </span></p>
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<div class="column">It is clear when looking across all the key economic indicators that the economy remains in good shape. If rates are to be cut again, Reserve Bank Board members may take some persuading that a rate cut is in the interests of the economy. The state of the housing market would provide a key input into the discussion process.</div>
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<br>The encouraging readings on the outlook for family finances are positive for retailers and other consumer- focussed businesses.<br>The Aussie dollar broadly fell from US72.20c to US71.95c in response to the Governor’s remarks. The Governor didn’t close the door on future rate cuts. <br><br>
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<div class="column"><em>Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.</em></div>
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Confident Aussies, RBA Governor “unplugged”: CommSec's Craig James

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<p>GUEST OBSERVER</p>
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<p><span>The Westpac–Melbourne Institute Index of Consumer Sentiment fell by 3.5% in January from 100.8 in December to 97.3 in January.</span></p>
<p><span>The Index is at its lowest level since September 2015 but remains 4.3% above its level of a year ago.</span></p>
<p><span>With limited domestic news during the holiday season consumers appear to have been mainly impacted by the spate of negative news on the international front and the spill over effect on financial markets.</span></p>
<p><span>Over the two weeks to the end of the survey the oil price has fallen by 20%.</span></p>
<p><span>Furthermore, over the same period, the Australian share market has fallen by 7.6% and the US market by 8.0%.</span></p>
<p><span>News on China’s volatile share market may also be affecting households with the Chinese market down by around 15% since the beginning of the year.</span></p>
<p><span>Partly reflecting those forces, we have also seen a fall in the Australian dollar from USD 0.73 to USD 0.69.</span></p>
<p><span>Not surprisingly these concerns have weighed most heavily on how respondents assess their own financial position. The component of the Index tracking views on ‘family finances vs a year ago’ dropped by 9.4% to be at its lowest level since July last year. The component tracking expectations for ‘family finances over the next 12 months’ fell 2.3%.</span></p>
<p><span>Among the other components: ‘economic conditions over the next 12 months’ fell by 5.0%; ‘economic conditions over the next 5 years’ improved by a modest 0.3%; and ‘time to buy a major household item” fell by 1.7%.</span></p>
<p><span>Both the Index and its components are seasonally adjusted to take account of the regular positive impact on confidence of the holiday season.</span></p>
<p><span>Other Indexes in the survey are not seasonally adjusted so results for these Indexes in January need to be treated with some caution.</span></p>
<p><span>The Westpac Melbourne Institute Index of Unemployment Expectations increased by 0.7% from 141.7 to 142.7. This implies a slightly more concerned feeling amongst respondents about the outlook for the unemployment rate. However, the Index is 5.3% lower than in January 2015 indicating that there has been a material improvement in respondents’ attitudes to the labour market over the year. </span></p>
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<p><span>There was a sharp 13.9% increase in the ‘time to buy a dwelling’ index from 99.2 in December to 113.0 in January. That is the highest reading for this Index since May last year. </span></p>
<p><span>The Index is now only 1.4% below its level for January 2015. The sharp increase in the Index in January will reflect some seasonality but the move is so large that we can only conclude that this print may be signalling some improving optimism in the housing market. </span></p>
<p><span>Most of the improvement in the national Index was driven by </span><span style="line-height: 1.3em;">a sharp improvement in New South Wales which has regularly posted the weakest readings amongst the states in recent times. For this reason it is best to be cautious but nevertheless encouraged by this result.</span></p>
<p><span>This improvement in the outlook for housing was also indicated in the Westpac Melbourne Institute Index of House Price Expectations. The Index increased by 21.1% in January from 103.7 in December to 125.8 in January. The Index is still down by 10.2% over the year but this read represents the best result since September 2015. </span></p>
<p><span>The Reserve Bank Board next meets on February 2. Despite markets confidently expecting that the Reserve bank would cut rates by February Westpac has remained firmly of the view that the Bank will remain on hold throughout the second half of 2015 and the whole of 2016. We retain that view despite some concerns from this survey that consumers may slow their spending in response to this current global uncertainty. </span></p>
<p><span>The Australian dollar has adjusted further providing the important ongoing boost to Australia’s competitiveness which is now assisting the economy’s adjustment as the mining sector slows. Furthermore the survey has provided an early signal that the pessimism which has dominated the housing market in the second half of 2015 may be easing. </span></p>
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<p><span><em>Bill Evans </em></span><em>is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.</em></p>
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NSW cautious but encouraging spike in housing confidence: Westpac's Bill Evans

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<p><span>GUET OBSERVER</span></p>
<p><span>The Westpac Melbourne Institute Index of Consumer Sentiment rose by 1.1 percent in October from 101.4 in September to 102.4 in October. </span></p>
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<p><span>This result extends a remarkable run of stability in the Index. Over the last six months the Index has held within a relatively tight 4 percent range with five of the six readings hovering just above 100 indicating that optimists have remained slightly in the ascendancy. </span></p>
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<p><span>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. </span></p>
<p><span>International events have hardly been without highlights including the vote by the British people to leave the European Union (‘Brexit’) and a particularly volatile US presidential election. On the other hand anxieties around China have definitely settled down and the prices of Australia’s major commodity exports have been particularly buoyant. </span></p>
<p><span>This stability is signalling a sustained lift in Consumer Sentiment over the last year. The average level of the Index over this last stable six months is now 4.9 percent higher than the average of the same six months a year ago. However that boost is all in expectations. </span></p>
<p><span>The “Current Conditions components of the Index have been steady while the Expectations components of the Index are up 8.1 percent on the previous year. This boost to expectations </span>has been sustained. Certainly there was a 4.4 percent lift following the change of Prime Minister a year ago but the Expectations Index has lifted a further 5.2 percent since last October.</p>
<p><span>The only disappointing aspect of this story is that the component of the Index which measures how respondents feel about their own finances relative to a year ago has fallen by 2.9 percent (on a six month average basis) whereas the component that tracks their outlook for finances over the next 12 months has lifted by 2.2 percent. </span></p>
<p><span>The largest average boost of the components has been the outlook for the economy over the next 12 months which has lifted by 13.1 percent on a year ago (on a six month average basis). </span></p>
<p><span>Ongoing stability in the labour market has been one likely explanation for the overall boost to confidence. The Westpac Melbourne Institute Index of Unemployment Expectations dipped from 138.4 to 138.2. The average print for the Index over the last six months is 138.2 – emphasising the stability of the current assessment of the labour market. This average read is 8.0 percent below the average of the same six months a year ago indicating </span>a definite improvement in respondents’ assessments of the conditions in the labour market.</p>
<p><span>There were generally minimal movements in the components of the Index over the month. The ‘family finances compared to a year ago’ sub-index fell by 0.4% while the ‘family finances over the next 12 months’ sub-index lifted by 0.9 percent. </span></p>
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<p><span>The ‘economic conditions over the next 12 months’ sub-index lifted by 5.8% while the ‘five year’ outlook was unchanged. </span></p>
<p><span>The ‘time to buy a major household item’ sub-index fell by 0.4 percent but is still up by 9.2 percent over the year. The average reading for this component over the last six months is up 3.3 percent on the average six months reading a year ago. </span></p>
<p><span>Confidence in housing faded in October. The ‘time to buy a dwelling’ Index fell by 3.3 percent in October from 105.7 to 109.3. There was a particularly sharp fall in the NSW Index – down by 10.5 percent with the Sydney Index down from 101 to 82.2 (–18.6 percent). 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 percent higher. In the case of the volatile Index in NSW we can see a 14.7 percent improvement while the Sydney index has improved over that period by 34 percent. </span></p>
<p><span>Confidence in house prices continued to improve. The Westpac Melbourne Institute Index of House Price Expectations increased by 1.6 percent in October to be 12.1% above its level in October last year. House price expectations in NSW lifted by 2.6 percent in the month to be 20 percent above the level a year ago. </span></p>
<p><span>There have been solid improvements in expectations across the major states over the year with Victoria up by 6 percent; Queensland by 9 percent and Western Australia by 15 percent. 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 percent fall in expectations in one month. </span></p>
<p><span>The Reserve Bank Board next meets on November 1. </span></p>
<p><span>A significant number of commentators have been predicting a rate cut in November and a few weeks ago markets had been giving around a 50 percent probability to a move. We were never convinced that </span>the inflation report which is due to be released on October 26 would provide the case for a cut. In fact, with a 0.3 percent reading for the underlying inflation dropping out, it seems likely that the September quarter report will actually show that annual underlying inflation has lifted. </p>
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<p><span>It has also become clear that the new Governor will give considerable weighting to ‘financial stability’ in his policy deliberations. With Sydney house prices having been reported to have lifted by 3.5 percent and Melbourne by 5 percent in the last three months the risks of further boosting housing with another rate cut will </span>be a significant consideration for the Board. While the results of today’s report point to some short term deterioration in housing sentiment the longer term picture is clearly still positive.</p>
<p><span>Indeed while we give little probability to a further rate cut at the next meeting our assessment of the growth outlook, including the shape of the construction cycle, points to rates remaining on hold for the foreseeable future. </span></p>
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<p><span><em>BILL EVANS</em><em> is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.</em></span></p>
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Consumer sentiment stabilises in positive territory: Westpac's Bill Evans

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<p>GUEST OBSERVER </p>
<p>The Westpac Melbourne Institute Index of Consumer Sentiment increased by 2.0 percent in August from 99.1 in July to 101.0 in August. </p>
<p>The survey was conducted over the first four days of August, covering the Reserve Bank’s August 2 announcement of a 0.25 percent cut in the overnight cash rate from 1.75 percent to 1.5 percent.</p>
<p>The response to this development has been much more muted than we saw in May when the Bank last cut the rate, from 2.0 percent to 1.75 percent.</p>
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<p><span>On that earlier occasion the Index lifted by an impressive 8.5 percent from 95.1 to 103.2. That was an exceptionally large positive response and much stronger than the average rise following rate cuts historically. </span></p>
<p><span>That can be explained by a number of factors. Firstly, there was a larger surprise element to the May decision with, arguably, significantly less intense media speculation than we saw in August. Secondly the standard variable mortgage rate offered by most banks was reduced by the full 0.25 percent, whereas in August the four major banks only reduced variable rates by 0.10- 0.14 percent. Finally, the Index was coming from a significantly lower starting point in May (95.1) than in August (99.1). </span></p>
<p><span>Another development that may have unnerved respondents in August has been political unease. With the government having been returned with a wafer thin one seat majority in the House of Representatives and considerable change in the Senate, respondents might also be somewhat uncertain about future prospects around potential political stability. </span></p>
<p><span>Finally we have to accept that as interest rates go progressively lower some respondents, particularly those who may not have a mortgage, may become more unnerved about the signal that record low rates is sending about the economy. For example, in today’s result, while respondents with a mortgage responded strongly, there was a 1.3% fall in the confidence of those respondents who wholly own their properties. </span></p>
<p><span>That negative might have been expected to be even bigger for respondents that have low debt and rely on interest income. However, the decision by banks to raise some term deposit rates following the RBA rate cut has instead given a notable boost – sentiment amongst retirees in particular posted a strong 7% rise. </span></p>
<p><span>Notably, consumers do not expect to see more interest rate relief. In our special question around the outlook for mortgage rates, 37% of respondents expect mortgage rates to rise over the next 12 months; 36 percent expect rates to be steady; and just 27 percent expect further rate cuts. </span></p>
<p><span>Overall the lift in the Index is still consistent with an improved outlook for the Australian economy. We are now back in the range where optimists outnumber pessimists. Over the last thirty months there have only been eight when optimists have been in the ascendency with three of those months figuring in the last four. </span></p>
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<p><span>In particular, prospects for the housing market appear to have been boosted by the rate cut. The confidence of those respondents who hold a mortgage lifted by 7 percent. </span></p>
<p><span>Westpac’s Index of ‘time to buy a dwelling’ rose by 10.1 percent to be up by 9.2 percent over the last year. In particular, the key states of NSW and Victoria showed strong improvements. The Index lifted by 19 percent in NSW and by 12.8 percent in Victoria. This is particularly significant for the key Sydney market where the Index is now 61 percent above the average of the second half of 2015 when confidence collapsed in the Sydney housing market. </span></p>
<p><span>The Westpac Melbourne Institute House Price Expectations Index was basically flat for the month but, consistent with the ‘time to buy’ index is signalling considerably more confidence than we saw at the start of the year. This Index has increased by 28 percent since the end of 2015. </span></p>
<p><span>Despite the lift in overall confidence prospects in the labour market deteriorated somewhat. The Westpac Melbourne Institute Unemployment Expectations Index increased by 1.7 percent from 138.8 to 141.2 (recall that higher reads indicate higher expectations for unemployment and a worsening outlook for labour market conditions). The Index is still 4.4 percent below its level from a year ago. However the promising improvement we saw in the Index near the end of last appears to have stalled over the course of this year. </span></p>
<p><span>Both of the components of the Index that assess family finances increased in the month. The ‘family finances vs a year ago’ sub- index lifted by 1.0 percent and the ‘family finances over the next 12 months’ sub-index was up by 4.3 percent. This is the second highest read on the outlook for finances since October 2013 although there has been no comparable outperformance for the backward- looking component, which is 9.6 percent below its level from a year ago. Note that in its Statement on Monetary Policy the Reserve Bank gives most attention to this component of the Index. </span></p>
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<p><span>Short term confidence in the economy improved. The ‘economic conditions over the next 12 months’ sub-index lifted by 3.5 percent to be up by 10.5 percent over the year. While there was little movement in the ‘economic conditions over the next 5 years’ sub-index (down 0.7 percent) that Index is also up by an encouraging 11.5 percent over the year. </span></p>
<p><span>Retail prospects improved marginally with the ‘time to buy a major item’ sub-index up 1.6 percent (although still down 2.7 percent on a year ago).</span></p>
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<p><span>The Reserve Bank Board next meets on September 6. Having cut rates at its last meeting the Board is almost certain to keep rates on hold in September. However it is clear from the Bank’s recent Statement on Monetary Policy that it holds an easing bias. That sentiment has encouraged markets to expect a further cut in November following the release of the next inflation report. The case for a cut is based on Australia’s ongoing low inflation environment. </span></p>
<p><span>However, by November, consistent with some of the messages in this survey we expect that economic conditions will have firmed sufficiently for the Bank to be more patient with its inflation objective. It may recognise that rigid adherence to the current inflation target of 2–3 percent might not be the best way to run policy in this current low inflation world. </span></p>
<p><span>Accordingly we expect that the Bank will decide to hold rates steady in November</span></p>
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<p><span><span><em>BILL EVANS</em></span><em> is chief economist of <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>. <em>Justin Smirk is ‎senior economist, Westpac Group and can be contacted <a href="https://www.westpac.com.au/about-westpac/westpac-group/" target="_blank">here</a>.</em></em></span></p>
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Case for rate cuts based on Australia’s ongoing low inflation: Westpac's Bill Evans

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<h2>EXPERT INSIGHT</h2>

<p>A pull back in the Index was to be expected.</p>

<p>Since the last survey in the second week of December we have seen domestic border closures; the emergence of Covid clusters in some states; and the sharp upswing in Covid cases overseas, notably the US and the UK.</p>

<p>This result compares to the 15% fall that was registered over July and August last year as the nation was shocked by Victoria’s severe second wave and associated hard lockdown. It still points to healthy Consumer Sentiment.</p>

<p>At 107.0 optimists clearly outnumber pessimists while the Index is 14.6% above the level a year ago and 41.5% above the low in April.</p>

<p>There may also be an element of statistical correction given that the Index had surged by 40% between August and December with the December print reaching its 10 year high.<br>
All components of the Index fell in January.</p>

<p>There were significant falls in the components associated with the economic outlook with the ‘12 month outlook’ falling by 8.3% and the ‘5 year outlook’ down by 4.5%.</p>

<p>Respondents were also less positive about their finances. The component ‘family finances relative to a year ago’ fell by 7% while the ‘12 month outlook for family finances’ was steady, falling by only 0.3%.</p>

<p>Spending intentions were also down with the component ‘time to buy major household items’ slipping by 2.8%.</p>

<p>Since January last year, before Covid was impacting Sentiment the ‘economic outlook’ components have lifted by around 26%; the ‘finances’ components by around 9%; while the ‘time to buy’ is up by 4.8%.</p>

<p><strong>BILL EVANS </strong><em>is the Chief Economist at Westpac</em></p>
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Consumer sentiment pulls back: Westpac's Bill Evans

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<p>EXPERT OBSERVATION</p>
<p>Consumer sentiment has tracked back to neutral as the earlier tax cut boost wanes and a variety of negatives impact. The housing market correction is in the mix but the detail suggests the impact on sentiment has been small so far.</p>
<p>The Westpac Melbourne Institute Index of Consumer Sentiment has weakened over the last 3 months, falling 4.2% and retracing all of the gains seen through the middle of the year.</p>
<p>At 100.5, the Index is now broadly unchanged on a year ago and only just above the 100 line, indicating a near even mix of optimists and pessimists.</p>
<p>A waning boost from the income tax cuts announced in May, renewed political instability, mortgage rate increases, further declines in house prices, rising petrol prices and unsettled financial market conditions all look to have contributed to the softer reads. Indeed, given the range of negatives, the pull back in sentiment has arguably been mild.</p>
<p>There is some evidence that positives around economic growth, the labour market and more balanced conditions across states have provided some underlying supports.</p>
<p>A key area of interest is the extent to which the house price correction is having spillover effects on the consumer. Assessments of family finances remain a notable weak spot.</p>
<p>Concerns around interest rates and house prices are both apparent – sentiment amongst households with a mortgage falling 6.4% over Sep-Oct.</p>
<p>That said, the more pronounced house price corrections in Sydney and Melbourne do not appear to be weighing more heavily on sentiment in these regions, at least not yet.</p>
<p><img src="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/image/The_Red_Book/Red_Book_bites/Redbook-bite-20181023-1.jpg" alt=""> </p>
<p><em><strong>Matthew Hassan</strong> is a Senior Economist for Westpac.</em></p>
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Housing market correction impact on consumer sentiment small so far: Matthew Hassan

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<p><strong>EXPERT OBSERVATION</strong></p>
<p>Remarkably, consumer confidence is now back around pre-COVID levels, having recovered all of the extreme 20% drop seen when the pandemic exploded in March–April.</p>
<p>Confidence has clearly been buoyed by Australia’s continued success in bringing the Coronavirus under control, which has in turn allowed for a further easing in social restrictions over the last month.</p>
<p>The Index is now only 2% below the average in the preceding September to February period. Note that sentiment was already on the weak side prior to the COVID shock with the Index through this earlier period showing a persistent excess of pessimists over optimists. With the unemployment rate set to remain elevated; extensive restrictions staying in place and the economy facing permanent structural change it would be surprising if the recent upward momentum continues and is able to sustain a stable level of confidence which is above that previous period.</p>
<p>We have also seen more even confidence levels in the major states as restrictions begin to be eased extensively across the country. Victoria lagged NSW in May with an 8.4% lift compared to 23%. However in June confidence in Victoria has jumped by 11.7% (to 94.9) compared to 4.8% in NSW (95.5). Overall confidence is now at comparable levels across both states.</p>
<p>While the monthly gains are impressive, the Index is still relatively weak by historical standards – in pessimistic territory overall and down 7% on a year ago. The general picture is of continued intense pressure on family finances and concern about the near- term outlook for the economy but with firming optimism around prospects for finances in the year ahead and the economy’s medium term outlook.</p>
<p>The contrast between that medium-term outlook in this recession and the last recession in the early 1990s is important. This component of the Index is around 50% higher than the average over a long four years in that earlier period. Respondents are confident that they can see eventual better times ahead whereas in the early 1990s there was a pervasive mood of despair for years.</p>
<p><em><strong>Bill Evans</strong> is an economic spokesman and researcher at Westpac.</em></p>
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Consumer sentiment back near pre-COVID-19 crisis levels: Bill Evans

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<p>EXPERT OBSERVER</p>
<p>The Westpac-Melbourne Institute Index of Consumer Sentiment fell 9.5% to 79.5 in August from 87.9 in July.</p>
<p>The scale of the fall comes as a major surprise. At 79.5, the Index is back near the extreme low of 75.6 seen back in April when Australia entered a national lockdown.</p>
<p>Since the July survey we have seen Victoria enter Stage 4 restrictions and evidence of some ‘hot spots’ in New South Wales. Under those circumstances it is certainly reasonable to have expected a sizeable fall in Consumer Sentiment.</p>
<p>However, collapsing to only 5.1% above the lows we saw in April when consumers were first confronted with a national lockdown may well prove to be a significant overreaction.</p>
<p>The biggest surprise was in NSW where sentiment collapsed by 15.5% – well in excess of the 8.3% fall in Victoria. Remarkably, the index in NSW has reached 77.8, below Victoria’s read of 78.</p>
<p>Even in Queensland, where cases have been largely eliminated, there was a fall of 8.1% putting the index in Queensland at 79.7, only slightly above NSW and Victoria.</p>
<p>The index in South Australia fell by 5.8% to 81.8 while only Western Australia was stable, falling by 1.5% to 85.9.</p>
<p>While some of the weakness in NSW and Queensland will reflect the direct economic drag from Victoria’s lockdown and the closure of interstate borders, the overall response seems disproportionate to the evidence on developments around the virus.</p>
<p>This emphasises the fear of the unknown.</p>
<p>Consumers across the nation appear to have been rattled by the developments in Victoria and fear that other states may also succumb to the ‘second wave’ outbreak.</p>
<p>NSW has seen several clusters although, after more than a month, there has been no evidence that these cases will develop into a Victorian-style disaster.</p>
<p>Queensland has seen even fewer cases and faces even more secure prospects.</p>
<p>Our view is that these fears are likely to have become overblown. While consumers are right to be concerned, virus risks still look low outside Victoria. Even in NSW new case counts remain well below the levels seen when Victoria’s outbreak started to ramp higher in the second half of June.</p>
<p>Certainly, the prospect of Victorian-style outbreaks taking hold across all of Australia seems remote. Fears across the nation will be lowered further as and when lockdown measures start to improve the situation in Victoria</p>
<p>Victoria’s progress in containing the virus with its current heavy lockdown policies will be much clearer by the first week in September when we conduct the next survey.</p>
<p><strong>BILL EVANS</strong><em> is <a href="https://westpaciq.westpac.com.au/Article/44613/14186/" target="_blank">Westpac's chief economist</a></em></p>
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Consumer sentiment collapsed in August especially in NSW: Bill Evans

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<p>EXPERT OBSERVER</p>
<p>The Westpac-Melbourne Institute Index of Consumer Sentiment surged by 18% from 79.5 in August to 93.8 in September.</p>
<p>We suspected last month’s 9.5% collapse in the Index was an over-reaction but this month’s 18% rebound is a pleasant surprise nonetheless. It comes despite official confirmation in the survey week that Australia had experienced its first recession since 1992. Clearly this was ‘old news’ with respondents more focussed on the future.</p>
<p>The rebound means the Index is now just 1.6% below the average over the six months prior to the emergence of COVID-19 in March.</p>
<p>Recall that the sharp fall in August was in reaction to the deteriorating virus situation in Victoria which had seen the state government announce hard lockdown measures at the start of the month including ‘Stage 4’ restrictions for Melbourne. But the more concerning message in August was the weakness in other states – in particular, the 15.5% slump in confidence in NSW.</p>
<p>The state had seen persistent clusters of virus cases and combined with Victoria’s problems, sparked concerns of a wider ‘second wave’ outbreak. To a lesser extent these fears were also apparent in Queensland where confidence tumbled 8.1%.</p>
<p>However, Victoria’s new cases slowed markedly once lockdown measures were in place and we saw no evidence of second waves in either NSW or Queensland.</p>
<p>It should be noted that the September survey was completed before the announcement by Victorian State Premier Andrews on September 6 of a slower than generally expected move towards reopening. The disappointment with that announcement could have been expected to dampen the 14.9% surge in confidence in Victoria, although frustration at the extended lockdown measures would likely still be more than outweighed by the clear success they have had in containing the virus.</p>
<p>We do not expect the Premier’s announcement would have had any impact on the positive results in other states.</p>
<p><strong>BILL EVANS </strong><em>is the Chief Economist at Westpac</em></p>
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Consumer sentiment roars back despite news of recession: Bill Evans

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<p>EXPERT OBSERVER</p>
<p>Consumer confidence continues to improve in September. Sentiment has lifted in four of the past five weeks.</p>
<p>Importantly, households are showing increased appetite for making a major household purchase.</p>
<p>In fact, the ANZ-Roy Morgan sub-index measure of whether it was a ‘good time to buy a major household item’ rose by 5.3 per cent to 1.8 points last week – the highest level since late June.</p>
<p>‘Stay-at-home’ Aussies have shown a strong desire to upgrade their homes during the pandemic. CBA credit and debit card spending on household furnishings and equipment over the week to September 11 is up 28 per cent on a year ago. And annual spending is above 30 per cent across all states and territories except Victoria (up 6.1 per cent).</p>
<p>Post-lockdown retail spending has been boosted by greater mobility, government payments and superannuation withdrawals. And household savings and potential tax cuts – along with closed international borders – could see pent up demand from consumers even as stimulus is tapered into year-end.</p>
<p><strong>What do the reports and figures show?</strong></p>
<p><em>Consumer sentiment – Week ended September 13</em></p>
<p>The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.4 per cent to 92.4 (long-run average since 1990 is 112.6). Confidence has lifted in four of the past five weeks. Sentiment is up by 41.5 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).</p>
<p>Four out of five of the major components of the index rose last week:</p>
<p><em>The Commonwealth Bank (CBA) credit card data – Week ended September 11</em></p>
<p>According to Commonwealth Bank (CBA), card spending in the week to September 11 was up 4.7 per cent on a year ago, compared to a 5.2 per cent lift for the week ended September 4. Online spending rose 17.4 per cent on a year ago (previous week: +21.9 per cent), but in-store spending was down 0.6 per cent (previous week: -2.1 per cent). Victorian card spending fell by 11.3 per cent on a year ago (previous week: ‑10.3 per cent), but Tasmanian spending was up 16.4 per cent (previous week: +18.2 per cent) compared to a year ago.</p>
<p>CBA noted, “Annual spending growth in all jurisdictions broadly tracked sideways over the past week. Spending on eating and drinking out has firmed over the week. In‑store spending is edging higher nationally and in Victoria it looks to have passed the trough.”</p>
<p><em>The Commonwealth Bank (CBA) Household Spending Intentions Series (HSI): August</em></p>
<p>According to the CBA, “The impact of the stage 4 lockdowns in greater Melbourne throughout August are clearly evident in the CBA Household Spending Intentions series for the month. The improvement seen during July in Home Buying, Retail, Travel, Entertainment and Education spending intentions all stalled in August. Health and Fitness spending intentions picked up in August, while Motor vehicle spending intentions continued to edge higher.”</p>
<p>On home buying intentions: “Home buying spending intentions for August retreated from their July highs. While there was a further increase in home loan applications, Google searches related to home buying declined slightly on the month.”</p>
<p>On retail spending intentions: “Retail spending intentions pulled‑back in August, consistent with our high‑frequency CBA credit/debit card spending data.”</p>
<p>On travel spending intentions: “The recovery in Travel spending intentions stalled in August, impacted by the restrictions imposed in Victoria.”</p>
<p>On health &amp; fitness spending intentions: “Health &amp; fitness spending intentions picked up in August. While actual spending was a little lower on the month, Google searches related to health saw an increase.”</p>
<p>On entertainment spending intentions: “Entertainment spending intentions pulled‑back a little in August, led lower by declines in food (eating out) and alcohol spending on licenced premises.”</p>
<p>On education spending intentions: “Education spending intentions were little changed in August, with some softness in spending and in Google searches for the education sector.”</p>
<p>On motor vehicle purchase intentions: “Motor vehicle spending intentions picked up in August and are back in positive territory for the first time since the start of the Covid‑19 pandemic.”</p>
<p><em>Kepler index of retail sales activity – Week ended September 13</em></p>
<p>The Kepler index of retail sales reported that aggregate sales fell by 13.2 per cent last week (September 13) to be down 26.9 per cent on the year. Average transaction value rose 0.1 per cent last week to be up 22.6 per cent on a year ago. Passer-by traffic fell 1.9 per cent last week to be down 52.6 per cent on the year. The weekly store shut down rate rose to 29 per cent (prior week: 27 per cent) with Victoria’s rate at 87 per cent.</p>
<p><em>OpenTable restaurant reservations – Week ended September 13</em></p>
<p>Australian restaurant reservations were down 9 per cent on September 13 from a year earlier, firmer than the 40.7 per cent drop recorded on September 6, according to OpenTable. Sit down diners fell by 99.7 per cent in Victoria (previous: -99.9 per cent), but were up by 61.6 per cent in Queensland (previous: up 146 per cent) and up 35.2 per cent in NSW (previous: +127 per cent).</p>
<p>Moovit change in public transport demand – Week ended September 13</p>
<p>Demand for public transportation – as measured by the urban trip planning app Moovit – was mixed over the week to September 13 (compared with the pre-pandemic level of January 15) from a week earlier in most of Australia’s biggest cities:</p>
<ul>
<li>Sydney &amp; NSW: -43.7 per cent (previous week: -43.3 per cent)</li>
<li>Perth: -32.7 per cent (previous week: -36.5 per cent)</li>
<li>Brisbane &amp; South-East Queensland: -41.5 per cent (previous week: -41.1 per cent)</li>
<li>Melbourne &amp; Victoria: -83.1 per cent (previous week: -83 per cent).</li>
</ul>
<p><em>What are the implications for investors?</em></p>
<p>Consumer confidence continues to improve due to increasing mobility in virus ‘free’ states and territories. Outside of Sydney and Melbourne, Aussies are more confident about going about their daily activities with the virus all but supressed. The notable weakening in sentiment last week in the two biggest cities and virus ‘hotspots’ – Melbourne (down more than 5 per cent) and Sydney (down over 3 per cent) – suggests that consumer caution remains elevated, weighing on the broader economic recovery.</p>
<p>Next week’s standout data release will be much-anticipated preliminary retail trade figures for August. The CBA Household Spending Intentions survey released today suggests that retail spending intentions pulled back in August. High frequency weekly CBA card spending and the Kepler Analytics retail gauge also imply a decline in spending during the month. Of course, Melbourne entered stage 4 lockdown restrictions in August with Victorian retail spending adversely impacted by social distancing measures and temporary retail store closures. But greater mobility in the ‘virus free’ states and territories are supportive of consumption and could yet offset the decline in Victorian spending.</p>
<p><strong>RYAN FELSMAN</strong><em> is a Senior Economis at CommSec</em></p>
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