Australian consumers are the least confident they’ve been in four years, in the wake of the most recent cut in official interest rates and growing concerns about the economy.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 5.5% to 92.8 in October from 98.2 the month before.

A reading of 100 is the marker between optimism and pessimism – the lower the reading, the greater the pessimism.

This marks the lowest level of the Index since July 2015. Consumer confidence has fallen 8.4% since the Reserve Bank started cutting interest rates.

Westpac chief economist Bill Evans said the result would concern RBA officials.

“Typically, an interest rate cut boosts confidence particularly around consumer’s expectations for and assessments of their own finances,” Mr Evans said.

“Consumers are looking behind the reason for the rate cut and, arguably, the absolute level of rates and getting nervous.”

Pessimists have outnumbered optimists for three of the past four months.

Global issues, such as the deteriorating trade relationship between the US and China had some impact, but Mr Evans said it did not explain the sharp fall in consumer confidence.

“Issues that may also be unnerving consumers include the debate around the lack of response of fiscal policy to the deteriorating outlook; the banks’ partial pass through to the standard variable mortgage rate of the recent official cash rate cut; and the realisation among Australians that wages growth is likely to remain ‘stuck’ at a modest 2% or less for the foreseeable future.”

Sentiment fell across the board, with consumer’s expectations for the economy recording the biggest fall.

Assessments of family finances took a heavy knock, both compared to a year ago and the outlook for the next 12 months – despite the series of interest rate cuts and tax relief rolled out since July.

Despite home loan interest rates at record lows, confidence among respondents with a mortgage dropped by 4%.

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      Important Information and Comparison Rate Warning

      Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of December 12, 2023. View disclaimer.

      Consumer attitudes towards spending deteriorated in October, with the ‘time to buy a major household item’ sub-index also at a four-year low. Spending on discretionary and big-ticket items has been especially weak over the last year – hardly good news for the struggling retail sector.

      The housing-related sentiment was more mixed, with rising house prices driving down sentiment about now being a good time to buy a house. However, more bullish expectations for prices suggest affordability constraints may be starting to re-emerge.

      In light of the results, Mr Evans said the signals around how consumers are assessing their finances are worthy of consideration before the Reserve Board makes its next move.

      “While we expect the Bank will also be studying various types of unconventional monetary policy measures, it is to be hoped that the signals from this survey highlight the possible unintended consequences that may result from the option of resorting to negative interest rates,” Mr Evans said.





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