Consumer sentiment has fallen to its lowest level since June 2009, as consumers become less concerned about interest rates and falling petrol prices and more concerned about the introduction of a carbon tax.
The Westpac-Melbourne Institute Index of Consumer Sentiment fell 2.6% in June to 101.2, down from 103.9 in May.
A level above 100 is considered positive but, as Westpac chief economist Bill Evans points out, this is a soft result.
“In today’s survey, we see that more confidence about the near-term outlook for the economy is offset by respondents’ concerns about their own financial position,” Evans says.
“The measure of how respondents feel about their financial position, compared to a year ago, printed 82.4 in June 2009, compared to 75.9 in today’s survey.”
“Equally, the outlook for finances over the next 12 months printed 113.8 in June 2009, compared to 95.5 in today’s survey.”
Evans says while interest rates have remained on hold for more than half a year, and petrol prices are down by 5.1% since the last survey, consumers are becoming increasingly concerned about tax issues, namely the impending carbon tax.
“Concerns about the introduction of a price on carbon are rattling households… It is unusual for tax to register such interest,” he says.
“There have really only been three periods over the last 10 years when tax has been a significant issue for respondents – during the period of the GST introduction, last year’s focus on the mining tax and the current period.”
According to Evans, savings decisions are dominated by consumer caution in this survey.
“The proportion of respondents who nominated bank deposits as the wisest form of savings increased from 27.1% in March to 32% in June,” he says.
“Since 1979, this proportion has only been exceeded in December 2008 and March 2009. The proportion of respondents nominating ‘pay down debt’ as the wisest place for savings rose from 22.6 to 23.9 – exceeded only in September 2009 and March 2010 since 1997.”
In contrast, the proportion of respondents nominating equities as the wisest place for savings fell from 12.2% in March to 8.4% in June – the lowest proportion since the early 1990s recession.
Real estate did not fare much better, falling from 16.3% in March to 14.6% in June, down from 21.7% a year ago and the lowest proportion in the history of the series back to 1974, excluding the global financial crisis.
With regard to interest rates, Evans says it seems unlikely the Reserve Bank would decide to tighten them at its next meeting in July.
“We expect that the board is still inclined to raise rates but economic reports, like the employment report last week and the evidence from this survey, as to how concerned and cautious households currently have become, are making it very difficult for the board to make the case,” he says.
“We do not anticipate that the inflation report, which will be released on July 27, will provide a case. The issue is whether the current soft patch in the labour market and the wave of caution now enveloping the household sector will pass as we move through 2011.”
Evans doesn’t expect the Reserve Bank to raise rates until November at the earliest.