A lot has been made of the recent divergence between consumer sentiment and business confidence in Australia. On the one hand, business sentiment has been buoyant, although after a fall in the latest survey it is back to its long-term average, which is on the optimistic side of neutral. On the other hand, consumer confidence has been slightly pessimistic since December 2016.
According to the latest Westpac-Melbourne Institute Consumer Sentiment Index, households were slightly less pessimistic than a month ago as the Index reading increased from 95.5 in August to 97.9 in September. Any reading below 100 indicates the number of consumers who are pessimistic is greater than the number of consumers who are optimistic. The long-term average reading is just over 101.
The survey was held in the first week of September when the RBA held the cash rate steady and job advertisements increased again. According to Westpac chief economist Bill Evans, the survey indicated finances were the main concern of households. At the same time, households’ expectations of the economy generally were positive, as were impressions of labour market conditions. “The consumer mood remains downbeat with September marking the tenth consecutive month that pessimists have outnumbered optimists. Pressures on family finances, concerns around interest rates, deteriorating housing affordability and rising energy prices have all weighed on confidence in 2017. These factors are more than offsetting the boost from an improved outlook for jobs particularly when a stronger labour market has not been associated with increased wages growth.”