In recent months, commentators and economists have pointed to a divergence between consumer sentiment and business confidence in Australia during 2017. Surveys indicated business confidence has been trending up since 2013, while measures of consumer sentiment have been bouncing around a level just on the pessimistic side of neutral. The latest surveys has not altered the divergent paths taken by the business and household sectors.
According to the latest Westpac-Melbourne Institute Consumer Sentiment Index, households were more optimistic than a month ago as the Index reading dropped back from 101.4 in October to 99.7 in October. 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 November. Westpac chief economist Bill Evans thinks attention on rising interest rates may be behind the fall, a theory which makes sense when Australian households are known to be carrying record amounts of debt. “Constant media coverage around the prospect of rising interest rates may be unnerving households. The confidence of respondents who hold a mortgage fell by 4.5% compared to a more modest fall of 1.4% for those owners who are mortgage free and a 0.5% increase for tenants.
Deutsche Bank chief economist Adam Boyton has what appears to be a simple fix for household confidence; higher wages. “Plotting labour costs from the NAB (business) survey against consumer sentiment and allowing for the apparent lag, suggests in fact that there is a high degree of alignment between what businesses are telling us about wages and what consumers are saying about their own circumstances.”
Yields on 3 year and 10 year bonds both finished the day 5bps higher at 2.01% and 2.68% respectively while the Aussie was a touch higher at 76.32 U.S. cents.