Consumers revert back to cautious ways

Australian businesses have been told to expect a conservative mindset from consumers over the next year, following a 5% dip in consumer confidence during September.

The latest Westpac-Melbourne Institute Consumer Sentiment Index showed that consumer sentiment dipped despite recent upbeat data on interest rates, economic growth and jobs.

The study said that the high consumer sentiment in August may have been a “bump” due to the Reserve Bank’s decision to keep interest rates on hold, with caution creeping back into consumer habits.

“We expect this behaviour to remain a dominant feature of the consumer sector both this year and next, encouraged by periodic ‘jolts’ to confidence from interest rate rises and financial market volatility,” states the report.

“This means the spending recovery will continue to be more restrained than usual, tracking incomes more closely. We expect spending growth to see a burst towards 3.5-4% this year but then a slowing in 2011. A return to the low-saving, credit-boosted growth rates of the previous 15 years remains unlikely.”

Coalition voters and consumers in Queensland and WA recorded the sharpest drops in consumer confidence, pointing to unhappiness over the election result, although overall sentiment remains in the positive.

There was a rise in the proportion of consumers prepared to pay down debt, up to 21% from 16.7% in June. Consumers are now slightly more prepared to buy a car, but there was a drop in the number believing that it’s a good time to purchase a house.