Consumer confidence index slumps 4.6%m/m

Consumer confidence index slumps 4.6%m/m

The Westpac-Melbourne Institute consumer confidence index slumped 4.6%m/m in February, following on from a 2.2% fall in January. The decline was unexpected given the survey was conducted following another significant cut to the official cash rate and the announcement of another round of cash handouts for workers, parents, farmers, carers and students. The number of pessimists again outweighed the number of optimists, with the index falling to 85.8 in February, remaining below the neutral level of 100 for the twelfth straight month.  

In the absence of the significant monetary easing recently delivered and the fiscal stimulus package announced last week, consumer confidence would have spiralled further south in February. The Australian government last Tuesday announced another significant fiscal stimulus package worth A$42 billion which included a big rise in spending on infrastructure and more cash payments to low and middle income earners. It followed an initial announcement in October when the government “gave back” A$10.4 billion. Also last Tuesday, the RBA slashed the cash rate by another 100bp to 3.25%, taking the cumulative rate cuts since September to 400bp, the most aggressive easing since the 1990-91 recession.

Sentiment fell in three of the five major categories of the index, with the biggest falls being in sentiment toward the economy in five years time (-16.5%), the economy one year ahead (-7.6%), and family finances a year ahead (-6.2%), indicating that recession fears have really sunk in to consumers’ mindsets. Confidence improved, however, toward family finances a year ago (+1.6%) and buying major household items (+5.8%) thanks to significant discounting among retailers aimed at increasing sales volumes.

In our view, the heaviest weight on consumer sentiment this year will be increased anxiety about job security. Business confidence is at a record low and leading indicators of employment, such as the ANZ job advertisement series, recently have collapsed. We expect that tomorrow’s labour force survey will show a 25,000 fall in employment in January and a rise in the unemployment rate from 4.5% to 4.8%.

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