Consumer confidence hits 10-month low, pessimists outnumber optimists

Updated

Consumer confidence has fallen to a 10-month low in March, with pessimists now outnumbering optimists.

The Westpac - Melbourne Institute Index of Consumer Sentiment has now fallen 10.9 per cent from its recent post-election high of 110.3 to read 99.5 in March.

A reading below 100 means that pessimists outnumber optimists in the consumer survey.

Westpac's senior economist Matthew Hassan says initial falls in the index appeared related to the rapid end of the Abbott Government's honeymoon period, but recent falls seem to reflect employment worries.

"The initial declines in December-January looked to be mainly the unwinding of the election-related sentiment boost," he noted in the report.

"More recent falls though have had a very clear theme centring on a sharp loss of confidence in the economic outlook and escalating job-loss fears."

The main area dragging the overall index down has been a steep slide in expectations about the economy over the next 12 months, which dropped 4 per cent this month after a 7.1 per cent slide last month.

Westpac says the result on this question is the weakest since December 2011, when the European sovereign debt crisis was at its peak.

It seems consumers were particularly rattled by recent news of job losses at Qantas, car makers and other major firms, with 45 per cent recalling employment-related news items.

The survey also showed a 5.5 per cent rise in unemployment expectations, to a level only eclipsed by readings during the height of the global financial crisis, and the recessions of the early 1980s and '90s.

However, Matthew Hassan says these concerns about the economic situation have not yet been reflected in most survey respondent's personal finances.

"The forward view on family finances and 'time to buy a major item' have been resilient throughout the decline since November suggesting that, while people are more concerned about the economy and jobs, so far these concerns are not seen to be directly impacting their own finances," he observed.

There are signs in the survey that households are moving towards more conservative financial positions, however, with "paying down debt" becoming a more popular savings option, and shares becoming less attractive.

Households are also increasingly wary of the housing market, which Matthew Hassan says is likely due to the recent jump in prices and worries that interest rates may rise within the next year.

"The 'time to buy a dwelling' index dropped 6.7 per cent in March and is now down 16.8 per cent from its September high," he observed.

"The sharp drop has taken the index below its long run average for the first time since August last year."

Topics: economic-trends, business-economics-and-finance, money-and-monetary-policy, retail, australia

First posted