Huge slump of key index

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 suppressing 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 had 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 by 4.7 per cent to 99.6 in January from 104.4 in December. Any result below 100 means “pessimists outnumber optimists” about the state of consumer sentiment.

This is the first sub-100 reading from the survey since November 2017. Mr Hassan said weaker 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 (Reserve) Bank is likely to lower both its 2018 and 2019 growth forecasts,” he said.

In November the Reserve Bank 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 central 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”, and that sentiment begins the new year with a “slightly pessimistic view”.

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

Mr Hassan noted 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 have also contributed to the glum outlook and lack of household confidence.