In a surprising turn of events, consumer sentiment in Australia witnessed a modest increase in June, as reported by the Melbourne Institute of Consumer Sentiment.
The index rose by a slight 0.2 per cent, reaching 79.2 compared to 79.0 in May. This development comes on the heels of the Reserve Bank’s decision to raise the cash rate by 0.25 per cent.
The survey, conducted between June 5th and June 9th, captured the immediate aftermath of the rate hike announcement. It revealed that while overall sentiment remained relatively stable, responses within the survey week exhibited a significant impact from the rate increase. Prior to the announcement, consumer confidence had surged from 79.0 in May to an impressive 89.0. However, following the news, confidence plummeted to an alarmingly low level of 72.6.
Amidst the rate hike discussions, concerns surrounding interest rates were not the sole preoccupation for Australian households. Notably, only about a third of households carry a mortgage. Instead, consumers were primarily tuned into news items related to inflation, budget and taxation, economic conditions, employment, and interest rates. The assessment of these topics leaned more toward the negative side. In particular, inflation emerged as the most worrisome issue, followed closely by interest rates. Nevertheless, there were positive improvements in the evaluations of economic conditions, employment, and the budget compared to the previous survey conducted in March.
Looking ahead, the majority of consumers anticipate further rate increases. In the post-RBA decision survey, a significant 78 per cent of respondents expect rates to rise within the next year. Furthermore, 48 per cent of them foresee a rise of at least 1 percentage point, slightly higher than the figures reported in May.
Examining the sub-indexes of the survey, results were mixed for June. The “family finances vs a year ago” sub-index displayed a 3.7 per cent increase, but remained deeply negative at 65.4. However, there were more positive gains reported by consumers with lower incomes, renters, and younger age groups. The recent decision by the Fair Work Commission to increase the Federal minimum wage and awards by 5.75 per cent likely contributed to these improvements. Conversely, respondents with mortgages maintained a weak sentiment, with the sub-group index at 58.5.
On a brighter note, the “economic outlook, next five years” sub-index experienced a substantial monthly gain of 6.3 per cent, reaching 92.7. This surge followed a significant decline of 9.2 per cent in May. Despite recent fluctuations, this particular component demonstrated greater resilience compared to others during the current period of economic weakness.
Despite these pockets of positivity, consumers’ near-term expectations painted a more pessimistic picture. The “family finances, next 12 months” sub-index witnessed a decline of 2.1 per cent, settling at 84.0. Additionally, the “economic outlook, next 12 months” sub-index remained weak and virtually unchanged at 77.2. These figures reflected a continuation of the downward trend observed in May. Notably, older age groups and regions with a high concentration of mortgages displayed particularly weak expectations.
Adding to the concerning sentiment, Australian consumers’ confidence in major purchases, particularly housing, further deteriorated in June. The “time to buy a major household item” sub-index plunged by 6.5 per cent to 76.4. This decline brought buyer sentiment to levels reminiscent of the record lows witnessed in February and March. Notably, individuals with mortgages, women, and those aged over 45 expressed a weak outlook.
Amidst this evolving landscape, job confidence, which had previously acted as a beacon of optimism in previous consumer surveys, now faces a rapid decline. The Westpac-Melbourne Institute Unemployment Expectations Index rose by 6.6 per cent in June, reaching 131.3. The steady climb in this index suggests that an increasing number of consumers anticipate a rise in unemployment in the coming months.
As the Reserve Bank Board prepares to convene on July 4, expectations loom regarding the potential for another cash rate increase. The Governor’s recent statement emphasised concerns surrounding inflation expectations and the potential for a wage-price spiral. With upside risks to inflation becoming more apparent, a tighter policy stance is the favoured approach.
CreditorWatch’s Chief Economist, Anneke Thompson said: “Consumer confidence remains near recessionary levels, with consumers surveyed by Westpac after the rate rise decision on June 6 noticeably more pessimistic than those surveyed the day prior. Consumer sentiment has never been this low for this long, which points to difficult times ahead for the retail sector in Australia. Already, the household goods sector is being severely impacted, with trade in this sector down almost 5 per cent in the year to April 2023, despite record inflation over that time period.
“Business sentiment is now starting to fall the way of consumers, although the drop in sentiment, it must be said, is a far slower process. Business confidence now sits at -4 index points, and business conditions fell from +15 to +8 index points between April and May. More concerning is that labour and input costs edged up, a further sign that inflation is too sticky.
“The fall in confidence levels amongst the business community reflects the increasing risk levels our Business Risk Index data is showing us. The number of credit enquiries businesses are making is 2.5 times what they were in April 2022, indicating that businesses are doing more frequent credit checks as insolvency rates increase, particularly in the construction and food and beverage sectors. Court actions are also up 50 per cent year on year, a further sign that a larger proportion of businesses are headed towards insolvency over the next six months, particularly as trading conditions will only get more difficult.”