Consumer sentiment edges up but employment worries remain

Consumer sentiment has picked up but remains weak, Westpac says, tipping fears about unemployment levels and continued problems in Europe to cause more headaches for the local economy.

The Westpac Melbourne Institute Index of Consumer Sentiment has recorded its second monthly jump, lifting by 0.4% this month to 97.2 points, from 96.9 in September. The result means there are more pessimists than optimists, and takes the annual fall to 16.9%.

The survey of 1,200 people conducted last week follows a better-than-expected National Australia Bank business survey yesterday, giving rise to hopes the economy is lifting itself out of a funk.

But Westpac senior economist Matthew Hassan says we’re far from out of the woods.

“Given the jump [in consumer sentiment] we saw in September to hang on to that gain is better than expected,” Hassan says.

“But one of the things that has happened in the past few months is consumers are more concerned about their jobs than they were,” Hassan says.

“There’s an underlying sense that the labour market is not in as great shape as it was.”

Hassan says unemployment has already risen faster than anticipated and will likely continue to rise to 5.7% by the middle of next year.

“And what’s important is not just the move but the way it’s being perceived by consumers,” Hassan says, pointing to recent surveys showing a sharp spike in unemployment expectations and the changes in behaviour that usually accompany job insecurity.

Hassan says Slovakia’s decision to vote against a plan to help stem the European debt crisis this morning suggests that the situation is “getting worse, not better”- meaning the volatility that has prompted dramatic movements in our equity markets and local currency over the past month will continue.

Westpac expects a rate cut in either November or December to have a strong ripple effect across the mortgage belt given the official cash rate is high at 4.75%.

The survey showed that the index measuring family finances was up 2.3% for the year, but the family finance index lifted 3%. And in bad news for some retailers, the percentage of people saying it was a good time to buy a major household item fell 5.6%.