NAB’s latest business survey indicated the business sector continued to experience buoyant conditions, with confidence levels to match. This rosy picture has not extended to Australian households, a divergence some economists attribute to low rates of growth in wages and salaries. According to the latest Westpac-Melbourne Institute Consumer Sentiment Index, households were slightly more pessimistic than a month ago as the Index slipped from 96.6 in July to 95.5 in August. Any reading below 100 indicates the number of consumers who are pessimistic is greater than the number of consumers who are optimistic.
The survey was held in the first week of August and households at the time were just about as pessimistic as they had been just prior to the RBA’s first of two rate cuts in 2016. However, at the moment there is virtually no thought of further rate cuts as other economic indicators are not as they were in 2016. The global environment has also changed and the global rate of growth is now higher. Consequently, central banks around the world either have entered the rate rising part of the cycle (the U.S., Canada, Mexico) or are contemplating it (the ECB). Despite the RBA stating recently it is not in lockstep with other central banks, it will soon face the same pressures to normalise rates as every other central bank.
Westpac chief economist Bill Evans said, “The consumer mood has deteriorated over the last year with August marking the ninth consecutive month where pessimists are outnumbering optimists. We have not seen such a succession of weak reads since 2008. The survey detail suggests increased pressures on family finances, concerns around interest rates and housing affordability in NSW and Victoria are more than outweighing increased confidence around jobs.”