Consumer confidence takes a hit after bushfires: Westpac

author-avatar By on January 22,2020
Consumer confidence takes a hit after bushfires: Westpac

Photo by Trent Szmolnik on Unsplash

Consumer confidence has dived in January in the wake of Australia's most devastating bushfires, as unease grows about the impact it will have on the economy.

The closely watched Westpac-Melbourne Institute Index of Consumer Sentiment declined by 1.8% to 93.4 in January from 95.1 in December. 

Westpac Chief Economist Bill Evans said it was "entirely reasonable" to have expected the index would have fallen during the bushfires and that it was "somewhat surprising" that the fall wasn't more severe "particularly in the light of the 5.8% fall we saw during the Queensland floods in 2011".

"However, the fall in the Index during the floods was from 110.0 to 104.6 - overall confidence levels during that period were very high - much higher than we are currently experiencing," Mr Evans conceded. 

"In short, confidence has been further eroded by the bushfires but because the Index was starting from such a modest level it was likely that the fall in confidence would be less than some may have expected.

"Arguably, because the survey occurred in a week where there was widespread rain the negative impact of the bushfires was somewhat reduced. If the survey had been conducted a few weeks earlier then the Index is likely to have fallen by even more, notwithstanding the very low starting point."

Retail sector remains firmly planted on struggle street

Expectations about the economy over the next 12 months also fell, which Mr Evans said was consistent with the "generally lacklustre reports on consumer spending". 

"The surprising jump in retail sales which was reported for November is likely to have largely reflected the 'Black Friday' effect," Mr Evans said.

"A more widespread boost to spending will be required before there are credible grounds to dispute the downbeat signals associated with the consistently low levels of the Index." 

The retail sector has been on struggle street for the last few months, with a number of high profile retailers shutting their doors due to a combination of tough market conditions and competition from online.

NAB figures out today point to ongoing weakness in the retail sector amid high consumer debt levels and sluggish wage growth. 

Apart from the fires, which Mr Evans saw as the most dominant influence on consumer sentiment this month, other factors should have been more supportive. 

"Optimism around financial markets and the global economy has lifted, with the Australian share market up by 6% since the start of the year," Mr Evans said. 

Last week's share market surge did in fact lift consumer's spirits, according to the weekly ANZ-Roy Morgan consumer confidence survey, which rose by one point.

That combined with the signing of the US-China 'Phase One' trade deal and easing drought conditions helped lift consumer confidence over the week.

CommSec Chief Economist Craig James said while consumers are feeling more upbeat, they're still reluctant to spend.

"Consumers are feeling more positive but both CBA and ANZ/Roy Morgan reports still highlight consumer caution about future purchases. Interestingly, the average 2019 reading on the consumer sentiment question - is this a good time to buy a major household item - was the lowest average calendar year result in a decade. This matches other information on both the overall economy and consumer spending," Mr James said.

While the overall economic picture painted by Westpac remained subdued, there were some positive signs. 

Housing-related sentiment was strong in January, with views on time to buy lifting while price expectations continued to surge.

Households were also feeling slightly more confident about employment opportunities. 

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Emma joined as a Finance Journalist in 2019. She is a journalist with more than five years experience across print, broadcast and digital media, with previous stints at Style Magazines, 4ZZZ radio, and as editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of young women and millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand. When she's not writing about finance she's watching Greys Anatomy (again).


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