Households more pessimistic: Westpac-M.I. survey

14 June 2017

Conditions may be good in the business sector but there does not seem to be evidence of Australian households feeling the same way. The Westpac-Melbourne Institute consumer sentiment index fell for a third month in a row in May to record a drop from 98.0 to 96.2. Any reading below 100 indicates the number of consumers who are pessimistic is more than the number of consumers who are optimistic. Westpac senior economist Andrew Hanlon said, “The index is now back in firmly pessimistic territory with the June reading the weakest since the RBA’s 2016 rate cuts. Although confidence is not overly weak it has shown a clear downtrend since mid-2016.”Australian Households more pessimistic: Westpac-M.I. survey

Confidence around the wider economy fell sharply in early June and survey respondents were slightly more pessimistic about keeping their jobs. However, they also expect their own finances to improve in the next 12 months. AMP Capital’s Shane Oliver put the results down to multiple factors. “The combination of poor wages growth, high levels of underemployment, bank rate hikes, higher electricity prices, talk of an increase in the Medicare levy et cetera, are likely all depressing consumer confidence.”

CBA economist Kristina Clifton explained the large gap between consumer and business confidence in the following manner. “The divergence can be explained by the differences in income growth between the household sector and businesses. Wages growth has been tracking lower over the past six years and annual growth is now at a series low of 1.9%. Underemployment has risen and is at an elevated level. On the other hand company profits have risen strongly over the past year for both mining and non-mining firms.”

Markets were focussed on the FOMC meeting to be held in the U.S. later that day and the release of the survey results had little effect on yields. At the close of business, the 3 year bond yield was 2bps higher at 1.77% while the 10 year yield slipped 1bp to 2.43%.