A perfect storm of pessimism

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

Falling house prices, poor economic growth keeping a lid on wage growth, turmoil in Canberra and fears of global trade wars all dragged confidence lower, Westpac senior economist Matthew Hassan said.

Consumer focused companies have revealed a barrage of bad news since Christmas, with men’s clothing chain Ed Harry on Tuesday falling into voluntary administration and department store Kmart this week revealing an uncharacteristically slow November and December.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 4.7 per cent to 99.6 in January from 104.4 in December.

Any result below the 100 level means that “pessimists outnumber optimists” about the state of consumer sentiment. This is the first sub-100 reading from the survey since November 2017.

And that poor outcome could have widespread ramifications, with Mr Hassan saying that a weakening in consumer sentiment “will be unsettling for the RBA given its concerns about downside risks to the outlook for consumer spending”.

“With the disappointing September quarter national accounts update materially lowering the starting point for growth and consumer momentum looking softer, the Bank is likely to lower both its 2018 and 2019 growth forecasts,” he said.

In November the RBA tipped growth to be a “strongly above trend” 3.5 per cent and 3.25 per cent forecast.

Mr Hassan expects that as the RBA tempers its growth views it will also “temper the Bank’s attitude towards rates”.

Westpac expects rates to be on hold in 2019 and 2020.

The RBA board meets on February 5 with the bank also due to release updated forecasts in its February Statement on Monetary Policy on February 8.

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

The result means the Westpac-Melbourne Insitute index – the oldest and most respected gauge of consumer confidence – is down 5.3 per cent compared to the same time last year.

Mr Hassan noted that the results “should be treated with some caution” as the index is adjusted to remove a regular boost to sentiment over the holiday season.

“However, even allowing for this, the update clearly marks a poor start to the New Year,” he said.

“Confidence has come under pressure from a number of fronts including a continued slide in house prices, disappointing updates on Australia’s economic growth, ongoing concerns around global trade wars; and political uncertainty.”

And Mr Hassan said the appalling state of Australian cricket could also have contributed to the glum outlook and lack of household confidence. “Other factors may also have weighed negative on sentiment in January including the Australian cricket team’s first domestic Test series defeat to India.”

Another measure of the “economic outlook, next 12 months” dropped 7.8 per cent.

This was its biggest fall since September 2015 when “sentiment was hit by a sharp sell-off in financial markets and a disappointing update on Australia’s growth”.

At the same time the index showing views on family finances also took a whack. One measure of views comparing finances to a year ago posted a sharp 5.9 per cent decline taking it back to near 2018 lows.

OTHER FACTORS MAY HAVE WEIGHED NEGATIVE ON SENTIMENT IN JANUARY INCLUDING THE AUSTRALIAN CRICKET TEAM’S (DEFEAT) MATTHEW HASSAN, WESTPAC