Consumer confidence falls as rates rise

Consumer confidence falls as rates rise

Consumer confidence falls as rates rise

Australian consumer and business confidence is plunging as interest rate hikes and inflation bites into sentiment, three new surveys indicate.

The Westpac-Melbourne Institute Index of Consumer Sentiment, the ANZ-Roy Morgan Australian Consumer Confidence Rating and the NAB Monthly Business Survey were all released on Tuesday. They indicated that sentiment, particularly among consumers and mortgage holders, is bleak and getting bleaker.

AMP senior economist Diana Mousina said the declines in both consumer and business confidence were expected, “given high recession fears domestically and globally, persistently elevated inflation (especially for essentials like utilities, petrol and food) and fast rises in interest rates”.

The Westpac survey, a poll of 1,200 respondents conducted from July 4 to July 7, dropped another three per cent in July to 83.8 points, its seventh consecutive monthly fall.

“The index has now fallen 19.7 per cent since December 2021, a precipitous tumble,” said Westpac chief economist Bill Evans.

Mr Evans said the fall was comparable to the two-month plunge during the COVID-19 pandemic and declines during the global financial crisis in 2008-09, the early 1990s recession, the mid-1980s downturn, and the early 1980s recession.

The July survey indicated that anxiety around interest rates was increasing, something that hadn’t been as obvious the previous month.

And while said sentiment about labour market conditions remained strong, Mr Evans said there were often significant lags between shifts in confidence measures and the labour market.

Meanwhile, the ANZ-Roy Morgan survey found sentiment fell last week for a second week in a row, particularly for homeowners being hit by higher interest rates.

The survey of 1,498 Australians conducted during the week to Sunday found consumer confidence fell 2.5 per cent to 81.6, well under the past three decades’ monthly average of 112.4.

Consumer confidence for those paying off a mortgage was down by a “sharp” 5.4 per cent, the survey found.

Since the talk of rate hikes began in late April, consumer confidence among mortgage holders has fallen 25 per cent, while confidence among renters is down four per cent.

Business sentiment has been holding up better than consumer confidence, but NAB’s monthly survey for June showed a drop to a below-average +1 index point.

“Confidence in the retail sector took a significant hit, falling more than 20 points to be well into negative territory, reflecting concerns about the outlook for household spending,” NAB chief economist Alan Oster said.

But forward orders remained elevated, as did capacity utilisation, suggesting that conditions would remain healthy in the near term.

“Overall, the survey suggests firms are increasingly wary of how the economy will hold up over the months ahead, despite continuing to experience fairly strong conditions at present,” Mr Oster said.

“Still, reasons for optimism remain, including elevated household savings and a strong labour market, which will weigh against concerns about the impact of inflation and interest rate rises on consumers.

“As such, the extent to which businesses’ fears are justified remains to be seen.”

Also on Tuesday, the Australian Bureau of Statistics reported household spending rose 7.9 per cent in May compared with a year ago.

Household spending increased in all categories, with transport up 14.5 per cent as Australians spent more on air travel and petrol.

Strong growth was also seen in spending on miscellaneous goods and services, hotels, cafes and restaurants, and recreation and culture, according to Jacqui Vitas, head of macroeconomic statistics at the ABS.

Derek Rose
(Australian Associated Press)