Consumer Sentiment drops to four year low

11 October 2019

The Westpac-Melbourne Institute Index of Consumer Sentiment fell -5.5% to 92.8 in October from 98.2 in September. This is the lowest level of the Index since July 2015.


The Index has fallen by -8.4% since the Reserve Bank started cutting rates in June and is down by -8.6% over the last year. The fall comes despite a further 25bp cash rate cut from the RBA at its October meeting – the third rate cut since June taking the cash rate to a new historical low of 0.75%.


This result will be of some concern to the monetary authorities who normally expect a lift in confidence following rate cuts. All index components recorded material declines in October.


Consumer expectations for the economy recorded the biggest falls – the ‘economy, next 5 years’ sub-index plunged 9.1% and the ‘economy, next 12 months’ sub-index dropped by 6%. October marks the first month both sub-indexes have been below their long run average levels since April 2016.


Assessments of family finances also took a heavy knock, the ‘finances vs a year ago’ sub-index was down by 4.9% and the ‘finances, next 12 months’ sub-index was down by 3.7%, the latter hitting a five year low. Both moves came despite the series of interest rate cuts since June and the LMITO tax relief rolled out since July.


Consumer attitudes towards spending also deteriorated in October. The ‘time to buy a major household item’ sub-index declined 4.2%, also moving to a four year low. Spending on discretionary and big ticket durable items has been particularly weak over the last year.


Housing-related sentiment continues to show more mixed results with softer reads on ‘time to buy’ but more bullish expectations for prices suggesting affordability constraints may be starting to re-emerge.