Westpac consumer sentiment index falters, rate cut expected in August

Consumer sentiment has remained mostly steady during July but remains downbeat overall compared to the same period in 2012, according to the latest Westpac Index of Consumer Sentiment.

But even though the overall confidence level has remained steady, there has been some movement within certain subsectors – with large decreases among renters, while those in the “managers and professionals” group recorded large increases.

The index fell 0.1% from 102.2 to 102.1 in July.

Westpac senior economist Matthew Hassan said in the report the survey suggests economic news such as the official cash rate remaining steady at 2.75%, and the falling dollar, could have boosted optimism about the future.

“The improved view on economic prospects, for example, may reflect shifting expectations for the US economy that have become more visible with the US Fed now contemplating ‘tapering’ its QE policy stimulus,” he said.

“It may also reflect clearer signs of an upturn in parts of the local economy, the housing sector in particular.”

However, there were some disappointing results. Consumer confidence is weaker than at the start of the year – about 7.6% below the March peak.

The index tracking thoughts on “family finances versus a year ago” fell 5.6%. But the index tracking thoughts for economic conditions over the next five years rose 9.2% to above the average level over the past two years.

Hassan points out the downfall in consumers’ thoughts about their own finances “highlights the fragility of sentiment”.

“It is also somewhat concerning given that these components tend to be better predictors of shifts in actual spending,” he said.

Of similar concern, Hassan said, is a downgrade in the “time to buy” index, which measures whether now is a good time to buy a household item. That index has fallen 1.7% overall, but the “time to buy a dwelling” index, and the “time to buy a car” index have fallen 8.4% and 10.3% respectively.

Given the lackluster demand, Hassan says it’s time for another interest rate cut – and the bank expects one.

“We expect the Bank to cut rates by 25 basis points at its August meeting with two further 25bp reductions coming in the December and March quarters”, he said.