During most of the period between 2014 and 2017, there was a divergence between consumer sentiment and business confidence in Australia. Some economists explained the difference by a lack of wages growth; low wages growth is good for business in keeping costs down and margins up. However, households’ propensity to spend is hampered. Other explanations, such as households’ debt levels and the threat of higher mortgage rates have also been put forward.
After the Westpac-Melbourne Institute, December consumer survey was released, there was some talk of a possible alignment of the business and household sectors. The January survey provided some support to this line of thinking but then the latest February report has cast some doubts.
According to the latest Westpac-Melbourne Institute Consumer Sentiment Index, households were less optimistic than a month ago as the Index reading dipped from 105.1 in January to 102.7 in February. Any reading above 100 indicates the number of consumers who are optimistic is greater than the number of consumers who are pessimistic. The long-term average reading is just over 101.