Westpac Consumer Sentiment improves but Pessimists still outnumber Optimists

The Westpac-Melbourne Institute Index of Consumer Sentiment rose 4.5% to 97.0 in November from 92.8 in October.

This rise in the Index follows a sharp 5.5% fall in October. The pattern of confidence falling in response to a rate cut and recovering when the RBA remains on hold repeats what we saw earlier in the year when the Index fell by 4.1% following the July cash rate cut only to recover 3.6% in August, when the RBA left rates unchanged.

This result continues to support the general view that consumers are somewhat unnerved by the announcement of low rates and media controversy around the banks’ responses. Looking through month to month volatility, the Index has fallen by around -4% since the RBA started cutting the cash rate in June and has been below the 100 level, indicating pessimists outnumber optimists, for four of the last five months. Despite this, all index components recorded a rise in November.

Consumer views on the economy improved but continue to show a more pronounced weakening in recent months. Consumer attitudes towards spending look to be downbeat heading into the all-important Christmas sales period and Housing-related sentiment was relatively stable in November.

Markets have generally lifted, the ASX up 3.2% over the last month, boosted by a more positive tone around the global economy. The key here will be whether the US and China are able to reach a successful agreement around the trade disputes since markets are now likely to be already pricing in a satisfactory outcome to the current discussions.

Consumer spirits may also have been lifted by the extensive coverage given, during last week’s survey period, to the possibility of the Commonwealth Government bringing forward the personal income tax cuts legislated for July 2022, to July 2020. See the full report here.