Confidence slump the worst in years

CONSUMER confidence has plummeted with a closely watched measure of household spending sentiment tracking the biggest monthly slump in three years.

Falling house prices, stagnant wage growth, turmoil in Canberra and fears over the cost of a global trade war had all dragged confidence lower, Westpac senior economist Matthew Hassan said.

A string of brick and mortar retailers have revealed a barrage of bad news since Christmas, with men’s clothing chain Ed Harry collapsing this week and discount department store titan Kmart posting a rare fall in sales.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 4.7 per cent to 99.6 in January.

The latest figure, released yesterday, was down from 104.4 in December.

Any result below the 100 level means that “pessimists outnumber optimists” about the state of consumer sentiment.

January’s result is the first sub-100 reading from the survey since November 2017.

And the poor outcome could have widespread ramifications, with Mr Hassan warning weakening consumer sentiment will be “unsettling” for the Reserve Bank.

The latest confidence read follows the nation logging its weakest pace of economic growth in two years for the three months to September, according the Australian Bureau of Statistics data.

The RBA was likely to lower its 2018 and 2019 growth forecasts — currently set at 3.5 per cent and 3.25 per cent — given the headwinds facing the economy, Mr Hassan said.

“We expect this tempered view on growth to also temper the bank’s attitude towards (interest) rates,” he said.

Westpac expects the cash rate to be on hold in 2019 and 2020.

Mr Hassan said the “cautiously optimistic” consumer mood that prevailed last year had now “evaporated” and the nation was beginning a new year with a “slightly pessimistic view”.

The index polls more than 1200 people across the nation about how confident they are feeling about their financial position.