Consumer confidence hits GFC levels, as sentiment for personal finances slumps to 1990s depths

A key measure of consumer confidence has fallen again to reach depths not seen since the global financial crisis, and Westpac says a series of rate cuts are necessary to prevent a real spending strike as consumers react to the international economic turmoil by fearing for their jobs.

The Westpac-Melbourne Institute consumer confidence survey has recorded a 3.5% fall for the first week of August to 89.6 points, adding weight to the 8.3% fall recorded in July to 92.8 points.

Furthermore, respondents were particularly downbeat about their personal financial positions, with expectations for their finances over the next 12 months falling by 5.1% to reach their lowest level since the early 1990s – even lower than levels reached during the GFC.

The outlook for economic conditions over the next 12 months is now 30% lower than it was in April, Westpac says, and slumped 13.5% over the month.

Westpac says the survey, of 1,200 people conducted between August 1 and 6, sends a “significant message”, but points out that respondents who answered before Friday, August 5 – the bulk of the respondents – were more upbeat than those who hadn’t. Ratings agency Standard & Poor’s cut the US credit rating during Friday trade on Wall Street.

Westpac Banking Corp senior economist Matthew Hassan says the recent sharemarket turmoil compounded already fragile views on personal finance.

“The interest rate rises and concerns on where rates are headed, plus soft house prices and expectations of higher prices under a carbon tax are weighing on the consumer mood,” Hassan told SmartCompany this morning.

“Consumers are being hit from all sides.”

“But our observation from the August survey is the weakness this month relates to concern over the outlook for the economy,” Hassan says.

Hassan says while many people can shrug off a sharemarket slump, their real concern is the state of the economy and job security in particular.

Questioned whether next month might deliver an improvement in sentiment given the sharemarket turnaround over the past two days, Hassan said as the extraordinary events over the past few days have demonstrated, tipping where the sharemarket is going is a hard ask.

“There’s nothing out there to pinpoint to a quick resolution,” Hassan says, of the international sovereign debt crisis.

Hassan says while Westpac does not expect a recession, the scale of declines over the past few months demonstrates “recession-like” qualities.

“There’s sufficient weakness coming through to see a rise in unemployment rate,” Hassan says, tipping up to 5.5% from current levels of 4.9%.

Westpac will release its employment expectations survey tomorrow. Hassan warns that if consumers are genuinely concerned about losing their jobs, larger scale falls in retail spending will likely follow – in a further blow to the fragile retail sector which is reeling from flat sales at the moment.