Australia: Consumer sentiment remains soft - Westpac

The Westpac Melbourne Institute Index of Consumer Sentiment rose by 0.4% in July from 96.2 in June to 96.6 in July, notes Bill Evans, Chief Economist at Westpac.

Key Quotes

“This is the eighth consecutive month where the Index has printed below 100 indicating that pessimists continue to outnumber optimists. The Index is not sending encouraging signals about the outlook for consumer spending.”

“Having said that, developments around interest rates during the month could have been much more damaging for confidence than turned out to be the case. Banks increased rates on ‘interest only’ mortgages while there was considerable media speculation about prospects for rising rates overall.”

“Conditions in the housing market appear to be stabilising, at least for the time being. The ‘time to buy a dwelling’ index lifted by 3.1% in the month – the first significant increase we have seen for this year. Recall that in the first half of 2017 this indicator fell consistently by just over 10%. Recent increases in state government assistance for first home buyers appears to have been a big factor in the July rise with the ‘time to buy a dwelling’ sub-index for 25–34 year olds surging 36% in the month.”

“The outlook for house prices also partially reversed the recent deterioration. The Westpac Melbourne Institute Index of House Price Expectations increased by 8.6% following the cumulative 11.8% fall we saw in the previous two months. With banks raising some mortgage rates and overall confidence soft it is too early to call a recovery in confidence in the housing market.”

“The Reserve Bank Board next meets on August 1. Rates will remain on hold.”

“We continue to predict that the Reserve Bank cash rate will remain on hold throughout the remainder of 2017 and 2018. A cautious consumer; a slowing housing market; and a weakening in the labour market with limited prospects of any boost to wages growth all point to another year of steady policy.”