Consumer sentiment is at its lowest level since August last year, according to the Westpac-Melbourne Institute of Consumer Sentiment, which recorded a 1.6% fall in consumer sentiment in April to 94.5 index points.
Westpac chief economist Bill Evans says the result comes as a “mild surprise” in light of improving conditions in the global economy and growing speculation of another interest rate cut.
“Apart from last year’s lows, and the March 2008 to May 2009 period, when households feared a recession… we have to go all the way back to 2001… to find sustained lower reads,” he says.
Evans says while the Reserve Bank’s decision not to deliver a rate cut earlier this month drew disappointment, the statement by governor Glenn Stevens was “quite encouraging”.
“However, folks with a mortgage did not see it that way. Confidence of borrowers fell by 5.1%, compared to an increase in confidence of tenants of 7.4%,” Evans says.
“Over the last 12 months, the standard variable mortgage rate has fallen by 0.4% yet the confidence of respondents who hold a mortgage has fallen by 14.6%.”
According to Evans, there is a “disturbing” message within the components of the index.
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“Respondents seem particularly perturbed about the state of their own finances. The sub-index tracking views on ‘family finances compared to a year ago’ slumped by 14.4%,” he says.
“In contrast, the sub-indexes tracking views on ‘economic conditions over the next 12 months’ and ‘economic conditions over the next five years’ rose by 0.8% and 1.5% respectively.”
“The sub-index on ‘whether now is a good or bad time to buy a major household item’ rose by a solid 4.3%.”
Evans says respondents’ spending behaviour is likely to be considerably influenced by how they assess their own finances, so the weak results in April are of significant concern.
“The read in today’s survey, on their assessment of finances compared to a year ago, is the lowest since the recession in the early 1990s,” he says.
Evans says the results of the survey should be sending a very clear message to the RBA that interest rates need to be lowered.
“We confidently expect the board to lower rates by 0.25% and furthermore, we do not expect that move to be the last,” he says.
Westpac isn’t alone in its call for an interest rate cut – the Australian Chamber of Commerce and Industry is putting pressure on the RBA to cut rates by 50 basis points when it meets on May 1.
“The time has come for Australia’s central bank to move decisively to cut rates by a full half a percent,” ACCI chief executive Peter Anderson said in a statement.
“A quarter of a percent cut would not be enough to do what is required. There needs to be significant and unambiguous signal, to support activity and to lift confidence.”
According to Anderson, an interest rate cut is needed before business activity and confidence are “whacked again” by the double whammy of a carbon tax and more labour cost increases in July.