Australia | Jan 21 2009
By Andrew Nelson
The artificial boost from aggressive rate cuts and fiscal bonus payments is starting to wear off and Australian consumers are once again becoming concerned about the economic outlook. After a rally in consumer sentiment seen through November and December, the January read of the Westpac-Melbourne Institute Index of Consumer Sentiment fell by 2.2% to 89.9 from 92 in December.
Westpac Senior Economist Matthew Hassan points out that sentiment still remains 1% above the average 2008 level and up 13.8% on the most pessimistic lows seen last year. He notes that, on the whole, consumers seem cautiously optimistic about their own prospects in 2009.
But the rushing river of dire economic news is clearly weighing on the consumer psyche.
Interest rate cuts, the fiscal stimulus package and lower fuel prices have given a boost to finances and the index for Family finances jumped 10.6% in January compared to a year ago. But the survey points out that consumers are becoming specifically concerned and pessimistic about the economic outlook for the year ahead. The reading on this component index slumped 18.4% to 58.3 in January, bringing it to its lowest level since July 1992.
The good news is, the moderation in sentiment isn’t having that much of an impact on spending, yet. The report showed that sentiment towards purchasing a major household item was down in January, but only a little. The overall read was 3.5% lower, but it had to cycle off a whopping jump of 48.4% seen through November to December.
The report showed sentiment towards buying a car also improved, rising 6.2% in January to be 27.7% above the average level in 2008.
Hassan notes that both of these measures have proven to be good guides to spending in the past.
The index also showed that sentiment towards housing also continued to improve, with the “is now a good time to buy a house?” response lifting 0.4% in January to 137.3. That number is now at its highest reading since March 2002.
It’s clear that the raft of stimulus and aggressive policy easing since September appears to be giving some boost to consumers, but at the same time, the global economic recession is deepening and broadening and Australian consumers are once again starting to negatively react.
It looks likes this fairly upbeat read (given the circumstances) may just be the calm before the storm.
With the full impact of this global weakening yet to be felt on our shores, Hassan fears that what lies ahead will continue to stifle the consumer response to any sort of policy stimulus. Generating a sustained upturn in domestic demand is difficult enough for policy makers, says Hassan, but under these circumstances, the government is going to find it very difficult to have a meaningful impact in addressing issues with the economy.