Consumer confidence at 16-year low
Sid Maher | June 12, 2008
RECORD petrol prices, fears about inflation and rising interest rates have sparked a collapse in consumer confidence to a 16-year low, as households suffer increasing fears about their finances and the potential for the economy to falter over the coming year.
The Westpac-Melbourne Institute index of consumer sentiment slumped by 5.6 per cent in the past month to 84.7 points, itslowest since the nation was emerging from "the recession we had to have" in December1992.
The index has now been below 100 - the level at which pessimists outnumber optimists - for five months in a row. It was sitting at an optimistic 121.5points this time last year.
The Rudd Government has consistently warned about the dangers of rising inflation since winning office in November, and price pressures on households have been intensified by a record spike in oil prices that has pushed the bowser cost of petrol above $1.60 alitre.
Westpac chief economist Bill Evans said spiralling petrol prices were likely to have been the main driver behind the sharp drop in consumer sentiment. But inflation also figured prominently in the collective psyche of consumers, with the number of survey respondents mentioning news items about inflation rising dramatically to 61.8 per cent from 15.2per cent a year ago.
Mr Evans said Westpac was surprised by the sharp drop in consumer confidence.
"Over the past five years, large falls in the index have almost always been associated with a negative response to the announcement of higher mortgage rates," he said. "There was no such announcement affecting this result."
With interest rates steady at a 12-year high of 7.25 per cent for the past three months, Mr Evans said the fall in confidence could be attributed to the spike in petrol prices as crude oil continues toset new records on international markets.
"It appears petrol prices are second only to interest rates in affecting the sentiment of consumers," Mr Evans said, pointing to a similar fall in confidence after the spike in petrol prices following Hurricane Katrina in the US in 2005.
Acting Treasurer Lindsay Tanner said the Government recognised the pressure working people were under, but that initiatives contained in the May budget were designed to ease the strain.
"The Government is acutely aware that many Australians are doing it tough and this is inevitably reflected in consumer confidence indicators," Mr Tanner said. "Our leading budget initiatives, particularly tax cuts, education tax credit and the increased childcare tax rebate, are all designed to ease the financial pressure on working people and offset the impact of rising petrol, food and housing costs."
But Opposition Treasury spokesman Malcolm Turnbull said the survey results were of "great concern" and they ultimately reflected a loss of confidence in the Rudd Government's handling of the economy.
"Consumer confidence held up well throughout the Howard years, through the Asian financial crisis, the September 11 terrorist attacks, the tech bubble, SARS and the worst drought in 100 years," he said. "Yet since the Rudd Government came to office in November last year, the index has dropped 23.3per cent and is now at its lowest level since December 1992 - when Labor was last in office."
Some economists believe the Reserve Bank board, which next meets on July 1, will have to raise interest rates further to contain inflationary pressures in the economy. But NAB senior market economist Spiros Papadopoulos said the latest figures added to evidence the economy was slowing enough to stay the Reserve Bank's hand.
Respondents to the survey are overwhelmingly pessimistic about family finances, with confidence plunging 33.7per cent in the past year. Asked about the outlook for family finances in the coming 12 months, pessimists and optimists are evenly split.
Australians are much more despondent about the 12-month outlook for the Australian economy, with sentiment crashing 43.9per cent in the past year as the Reserve Bank raised interest rates four times in a row.
According to the survey, the biggest rise in pessimism in the past year is among professionals, higher-income earners and mortgagees. Sentiment among mortgage holders, who are now enduring home loan rates approaching 10per cent, has plunged 33per cent in the past year.
Australians on incomes above $60,000, and those living in the cities, have become much more pessimistic about the economy than those on lower incomes or in regional areas.
Coalition voters are the most gloomy about the economic outlook. In June last year, sentiment among Coalition voters was rated at an optimistic 136.3 points, compared with just 76.4 points now. Among Labor voters, pessimists only narrowly outweigh optimists, with an index score of 95.9 points.
The survey also finds a big fall in confidence in the stock market and real estate as a place to park family finances. Just 11.3per cent of respondents consider the stock market the best place to invest savings, down from 17per cent this time last year, with real estate favoured by only 14.7per cent, down from 19.7per cent.
Reflecting uncertainty in financial and property markets, 29.7per cent of people think banks are the best place for savings, up from 19.2per cent this time last year. One in five people say paying back debt is the best thing to do with their cash, double the level in June last year.
The consumer confidence survey follows the release of March quarter national accounts last week that suggested the Reserve Bank's campaign of rate rises was slowing consumer spending but had not brought it to a standstill.
The 0.6 percentage point growth in the economy in the first three months of the year was much faster than either the Reserve Bank or Treasury was expecting, but is not likely to bring forward further rate rises.
Growth in household spending was halved to 0.7per cent. However, the national accounts underlined the grip inflation had on the economy, with prices rising 1per cent in the quarter.
Citigroup co-head of economic and market analysis Paul Brennan said the present petrol prices, if sustained, would erode about half of the boost to household incomes provided by the federal budget.
Additional reporting: Nicola Berkovic, Clive Mathieson
http://www.theaustralian.news.com.au/story/0,25197,23850376-2702,00.html
It seems the rise in petrol is hastening the slow-down in the economy and taking up more of the burden previously shouldered by IR rises. The full effect of IR rises have yet to flow through to tenants because of lease periods. The petrol rises will erode about half of the boost to household income from the fed budget (above), however with the IR rises and impact on mortgages (LLs and OOs), my guess is that the duo will almost negate the entire inflationary effect of the budget boost. So, recessionary rather than inflationary conditions may influence the consumption preferences of most low-medium income earners.
What the two above missed the drop in the stockmarket will pick up with its impact on consumption behavior, particularly on the affluent segments of society, when the reports of super performance are distributed by July-Sept.
The trio of gloomy clouds, the darker and faster, is what I think will bring forth the silver lining of the RBA's hand in reducing IRs. The sharper and stronger the pain will attract sooner govt and RBA priority to apply relief.
IMHO, provided petrol price stays high, there is a good chance for interest relief to PIs later this year, at which time may provide a window for relief for PIs, OOs and small businesses.
Sid Maher | June 12, 2008
RECORD petrol prices, fears about inflation and rising interest rates have sparked a collapse in consumer confidence to a 16-year low, as households suffer increasing fears about their finances and the potential for the economy to falter over the coming year.
The Westpac-Melbourne Institute index of consumer sentiment slumped by 5.6 per cent in the past month to 84.7 points, itslowest since the nation was emerging from "the recession we had to have" in December1992.
The index has now been below 100 - the level at which pessimists outnumber optimists - for five months in a row. It was sitting at an optimistic 121.5points this time last year.
The Rudd Government has consistently warned about the dangers of rising inflation since winning office in November, and price pressures on households have been intensified by a record spike in oil prices that has pushed the bowser cost of petrol above $1.60 alitre.
Westpac chief economist Bill Evans said spiralling petrol prices were likely to have been the main driver behind the sharp drop in consumer sentiment. But inflation also figured prominently in the collective psyche of consumers, with the number of survey respondents mentioning news items about inflation rising dramatically to 61.8 per cent from 15.2per cent a year ago.
Mr Evans said Westpac was surprised by the sharp drop in consumer confidence.
"Over the past five years, large falls in the index have almost always been associated with a negative response to the announcement of higher mortgage rates," he said. "There was no such announcement affecting this result."
With interest rates steady at a 12-year high of 7.25 per cent for the past three months, Mr Evans said the fall in confidence could be attributed to the spike in petrol prices as crude oil continues toset new records on international markets.
"It appears petrol prices are second only to interest rates in affecting the sentiment of consumers," Mr Evans said, pointing to a similar fall in confidence after the spike in petrol prices following Hurricane Katrina in the US in 2005.
Acting Treasurer Lindsay Tanner said the Government recognised the pressure working people were under, but that initiatives contained in the May budget were designed to ease the strain.
"The Government is acutely aware that many Australians are doing it tough and this is inevitably reflected in consumer confidence indicators," Mr Tanner said. "Our leading budget initiatives, particularly tax cuts, education tax credit and the increased childcare tax rebate, are all designed to ease the financial pressure on working people and offset the impact of rising petrol, food and housing costs."
But Opposition Treasury spokesman Malcolm Turnbull said the survey results were of "great concern" and they ultimately reflected a loss of confidence in the Rudd Government's handling of the economy.
"Consumer confidence held up well throughout the Howard years, through the Asian financial crisis, the September 11 terrorist attacks, the tech bubble, SARS and the worst drought in 100 years," he said. "Yet since the Rudd Government came to office in November last year, the index has dropped 23.3per cent and is now at its lowest level since December 1992 - when Labor was last in office."
Some economists believe the Reserve Bank board, which next meets on July 1, will have to raise interest rates further to contain inflationary pressures in the economy. But NAB senior market economist Spiros Papadopoulos said the latest figures added to evidence the economy was slowing enough to stay the Reserve Bank's hand.
Respondents to the survey are overwhelmingly pessimistic about family finances, with confidence plunging 33.7per cent in the past year. Asked about the outlook for family finances in the coming 12 months, pessimists and optimists are evenly split.
Australians are much more despondent about the 12-month outlook for the Australian economy, with sentiment crashing 43.9per cent in the past year as the Reserve Bank raised interest rates four times in a row.
According to the survey, the biggest rise in pessimism in the past year is among professionals, higher-income earners and mortgagees. Sentiment among mortgage holders, who are now enduring home loan rates approaching 10per cent, has plunged 33per cent in the past year.
Australians on incomes above $60,000, and those living in the cities, have become much more pessimistic about the economy than those on lower incomes or in regional areas.
Coalition voters are the most gloomy about the economic outlook. In June last year, sentiment among Coalition voters was rated at an optimistic 136.3 points, compared with just 76.4 points now. Among Labor voters, pessimists only narrowly outweigh optimists, with an index score of 95.9 points.
The survey also finds a big fall in confidence in the stock market and real estate as a place to park family finances. Just 11.3per cent of respondents consider the stock market the best place to invest savings, down from 17per cent this time last year, with real estate favoured by only 14.7per cent, down from 19.7per cent.
Reflecting uncertainty in financial and property markets, 29.7per cent of people think banks are the best place for savings, up from 19.2per cent this time last year. One in five people say paying back debt is the best thing to do with their cash, double the level in June last year.
The consumer confidence survey follows the release of March quarter national accounts last week that suggested the Reserve Bank's campaign of rate rises was slowing consumer spending but had not brought it to a standstill.
The 0.6 percentage point growth in the economy in the first three months of the year was much faster than either the Reserve Bank or Treasury was expecting, but is not likely to bring forward further rate rises.
Growth in household spending was halved to 0.7per cent. However, the national accounts underlined the grip inflation had on the economy, with prices rising 1per cent in the quarter.
Citigroup co-head of economic and market analysis Paul Brennan said the present petrol prices, if sustained, would erode about half of the boost to household incomes provided by the federal budget.
Additional reporting: Nicola Berkovic, Clive Mathieson
http://www.theaustralian.news.com.au/story/0,25197,23850376-2702,00.html
It seems the rise in petrol is hastening the slow-down in the economy and taking up more of the burden previously shouldered by IR rises. The full effect of IR rises have yet to flow through to tenants because of lease periods. The petrol rises will erode about half of the boost to household income from the fed budget (above), however with the IR rises and impact on mortgages (LLs and OOs), my guess is that the duo will almost negate the entire inflationary effect of the budget boost. So, recessionary rather than inflationary conditions may influence the consumption preferences of most low-medium income earners.
What the two above missed the drop in the stockmarket will pick up with its impact on consumption behavior, particularly on the affluent segments of society, when the reports of super performance are distributed by July-Sept.
The trio of gloomy clouds, the darker and faster, is what I think will bring forth the silver lining of the RBA's hand in reducing IRs. The sharper and stronger the pain will attract sooner govt and RBA priority to apply relief.
IMHO, provided petrol price stays high, there is a good chance for interest relief to PIs later this year, at which time may provide a window for relief for PIs, OOs and small businesses.
