After a lengthy divergence between consumer sentiment and business confidence in Australia which began in 2014, the two sectors converged again around July 2018. Both measures have been around or under neutral levels in recent months but business sentiment has been falling from a higher base, whereas consumer sentiment has been stagnating at or close to neutral levels for some years. This latest consumer sentiment survey indicates the recent stoicism of households has cracked in the face of global uncertainties and the RBA’s recent actions.
According to the latest Westpac-Melbourne Institute survey conducted over a week in late September and early October, average household optimism has plunged to levels which are approaching the lower boundary of a range which is considered to be “normal”. The Consumer Sentiment Index dropped from 98.2 to 92.8, considerably below the long-term average reading of just over 101. Any reading above 100 indicates the number of consumers who are optimistic is greater than the number of consumers who are pessimistic.
Westpac chief economist Bill Evans said, “The fall comes despite a further 25bps cash rate cut from the RBA at its October meeting, the third rate cut since June, taking the cash rate to a new historical low of 0.75%.”