Consumers’ year of gloom ends on brighter note

This year will go down as one of the most pessimistic on record for Australian consumers with sentiment battered by the surging cost of living, higher interest rates and a rising tax burden.

The latest Westpac-Melbourne Institute index of consumer sentiment did improve slightly, to 82.1 in December from 79.9 in November, but 2023 still marks the second worst calendar year for sentiment in records going back to 1974.
 

Inflation continues to be the dominant concern. 

The December survey included additional questions about news recall that show which issues are getting the most attention. Not surprisingly, the topic with the highest recall was inflation, with over 55 per cent of consumers noting news on this issue. 

Other issues garnering attention, albeit some way behind, were ‘budget and taxation’ (35 per cent), ‘economic conditions’ (32 per cent) and ‘interest rates’ (23 per cent).  

This does suggest that if we get a material improvement in inflation it could be the catalyst for a long-awaited upturn in sentiment. 

The pick-up in the index for December looks to have been driven by the Reserve Bank leaving interest rates unchanged at its meeting at the start of the month. 

Survey responses showed a material lift following the Board’s decision to pause: the average index read among those surveyed prior to the decision was 79.1, rising to 83.4 among those surveyed after.

In housing, there’s still a clear tension between stretched affordability and positive price expectations. Assessments on whether now is a good time to buy a property rose 1.6 per cent in December, but remain extremely low by historical standards. Meanwhile, around two thirds of survey respondents expect prices to be higher over the next twelve months. 

On a more positive note, consumers were a bit more upbeat on their view on family finances compared to a year ago with that sub-index improving by nearly 6 per cent on the previous month. 

They’re also reasonably optimistic on the outlook for jobs. The unemployment expectations sub-index dipped 1.2 per cent to 128.9 in December – a lower index reading indicates more consumers expect unemployment to fall – which is consistent with a softening in labour market conditions rather than a sharp deterioration. 

Overall, it suggests to us that consumers expect the economy to hold up pretty well over the medium to longer term.

To read Matt’s full report, visit WestpacIQ.