“Very disturbing” consumer sentiment crashes

From Westpac’s Bill Evans:

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• The Westpac-Melbourne Institute Consumer Sentiment Index fell 5.7% in December from 96.6 in November to 91.1 in December.

This is a very disturbing result. The Index is now at its lowest level since August 2011 when it briefly fell below 90. Prior to that you have to go all the way back May 2009 to see a period when the Index printed consistently below today’s level.

There was consistent weakness in the index during most of the seven day survey period (December 1–7) but the read was significantly weaker on the day of the release of the September quarter national accounts. These showed that the economy had been limping along at a 1.6% annualised growth pace for the last six months, with national incomes declining and overall activity contracting in the quarter in every state except New South Wales.

Respondents may have been particularly unnerved by media references to an ‘income recession’.

Respondents are clearly concerned about the outlook for the economy and job security. In addition there is ongoing disillusionment about the May Budget, six months after it was announced.

The survey provides us with a specific measure of those news categories which most affected respondents and whether they were assessed as favourable or unfavourable. The most recalled news topics were: ‘economic conditions’ (59.2% of respondents); ‘budget and taxation’ (52.7%); ‘international conditions’ (26.3%) and ‘employment’ (19.5%).

Respondents assessed the news to be extremely unfavourable for all of these categories. Of those giving an opinion, 87% viewed news on ‘economic conditions’ as unfavourable; 83% viewed news on ‘budget and taxation’ as unfavourable and 96% viewed ‘employment’ news as unfavourable. These are the most negative responses on news recall since March 2001 on ‘economic conditions’, September 1986 on ‘budget and taxation’, and December 1975 (the beginning of the survey) for ‘employment’. These readings are almost certainly an overreaction but do highlight significant risks to spending, particularly over the course of the next few months.

The individual components of the index are also pointing towards a softening in spending.

With one exception all the components of the index were down: the sub-index tracking views on ‘family finances vs a year ago’ rose 1.6% but ‘family finances, next 12 months’ was down 4%, ‘economic conditions, next 12 months” fell 9.7% and ‘economic conditions, next five years’ was down 1.8%.

Of particular concern was a major collapse in the sub-index tracking assessments of ‘time to buy a major household item’.

This component fell 11.8% from 124.2 to 109.6. It is now 21.4% below its level of a year ago and has reached its lowest level since April 2009.

This is a particularly awkward time for respondents to feel so downbeat about purchasing major items given that it comes in the critical lead up weeks to Christmas.

That said, the decline may well be a reaction to recent sharp falls in the Australian dollar and the impact this is expected to have on the cost of imported goods.

Not surprisingly, respondents have increased their anxiety around the labour market. The Westpac-Melbourne Institute Unemployment Expectations Index increased by 4.4% to 159.5 (recall that a higher level indicates more consumers expect unemployment to rise over the next 12 months). Apart from one higher print in March this year, this is the highest read since June 2009 when respondents were still traumatised by the Global Financial Crisis.

Optimism around the housing market has evaporated. The index tracking assessments of ‘time to buy a dwelling’ fell 10.8% and is now down 19.3% over the year to the weakest level since November 2010.

Consistent with that shift in sentiment, the outlook for house prices has also deteriorated sharply. The Westpac-Melbourne Institute House Price Expectations Index fell 8.3% to be down 22.5% over the year. Despite this clear shift, expectations are still positive overall, implying more consumers expect house prices to rise than fall, and the Index is above its low in June this year and well above readings in 2011-12.

Respondents have become more risk averse in their preferences for their savings. The proportion of respondents nominating ‘bank deposits’ as the wisest place for savings increased from 34.3% in September to 37.0% in December. That is the third highest proportion of respondents favouring bank deposits since 1979.

Those preferring to pay down debt jumped from 13.7% to 17.6% while the proportion favouring real estate fell from 25.7% to 20.0%.

The Reserve Bank Board next meets on February 3. Last week, following the release of the national accounts, Westpac revised its interest rate forecast. We now expect the Board to approve a 0.25% cut in the cash rate at its February meeting with a further 0.25% cut in March. The messages from this survey are certainly consistent with the assessment that the Australian economy needs even lower rates. Overall confidence is weak. Respondents have sharply lowered their assessments of the economic outlook and their spending intentions. They remain extremely nervous about job security while adopting a more cautious attitude towards both their finances and the outlook for housing.

While this survey may prove to be an overreaction to the sobering news from the national accounts and ongoing concern around the Commonwealth Budget, it appears that the messages aroundspending, the labour market and housing are clearly signalling the need for a further boost in the form of lower interest rates.

In a world where other developed economies have near zero interest rates and, accordingly, the Australian dollar is overvalued, Australia should seize the opportunity to provide further interest rate relief to the economy and exert some more downward pressure on the Australian dollar.

Oh dear.

David Llewellyn-Smith
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Comments

  1. johnathonbbbrown

    The ONLY answer to everything is lower interest rates! That protects people with MASSIVE debt. Fk those who have money in the bank who are actually holding up everybody else.

    • “Fk those who have money in the bank who are actually holding up everybody else.”

      And if things go really pear-shape they can always confiscate our savings! Man, I used to believe those that consumed and borrowed too much were acting foolishly, but it looks like I was the irrational one.

      • Anyone using fiat as other than a transactional tool is carrying much more deflation risk than they think.

        There really are only assets and monetary assets now.

      • aj.
        +1

        You are one of the few who realize this fact. Most here look at fiat as an asset…….and they could not be further from the truth. To expect some payoff for holding excess fiat is only slowly bleeding the system. It takes growth somewhere to supply that payout….a ponzi if you will, and that gig is up.

      • I agree aj, but there are no good options left for us lay people. The whole system is twisted and distorted making it difficult for most people to know where value lies and what the real risk of investments are. For me it’s really about the least worst option.

    • You can get upset and emotional about it (although I don’t recommend this, as it’s out of your control) or you can shift your thinking and adjust your behaviours to take advantage of it. It’s a choice.

  2. It is the “only answer” in a credit based money system johnathonbbbrowm…

    Though I totally agree with your sentiment and I really feel it is probably too late for the Murray Inquiry recommendations.

    The external shock looks like it could be coming now…

    • Andrew, indeed this was discussed recently with the cutters and the hikers, however there WILL come a time when IR will rise and we can choose to step up by 0.25 or even less.

      If we don’t take this medicine we might have to raise to defend the currency and then it will be perhaps 2,3,4 or even 5% rise overnight as was the case in Turkey recently.

      For me the choices are clear.

  3. House prices need to go higher!

    Wages need to fall!

    Unemployment needs to rise!

    Debt levels along with it!

    Interest rates to -2.5%!!!

    It’s the only way we can be saved!!!

    Hehe

    Dumb arse Straya.

    Over-indebted.

    Downfall.

    Coming!
    😉

  4. I am wondering if this is why the MP was announced the way it was yesterday. A part of me was thinking they had had something shock them in some way. Do you reckon the boys have had a sighter of this and thought they may need to move earlier than they had hitherto thought on MP to make that next rate move more obvious?

    • Gunna, a sighter?, the image has loomed large for the last 50 days. The smart money has shorted or is on the sidelines, or has even left the country, like rats from a sinking ship. As is usually the case, this is how the rich become richer, etc WW

      • WW, agree with all that – the turd on the national economic radar has been there for some time. But I did think something had sort of unsettled the powers that guide our regulatory types

      • I totally agree with your comment last night, Gunnamatta.

        It seems something will soon be made apparent to all of us.

        All this manufactured panic – so close to xmas.

        It just doesn’t make sense.

      • Correct …. and if it doesn’t make sense its because you don’t know something they do. So what might that be, its clearly BAD.

        There are so many bad possibilities or as G puts it ‘Turds on the radar’ its difficult to know which turd is going to hit first.

        Perhaps the more yellow stuff you have the less brown stuff you’ll get?

        Hope so!

      • Gunna, A milestone was passed yesterday with Myer being down 5%.Today we have in that fallen retail, lot
        Metcash
        Super retail
        Harvey Norman and for those with real dogs, Greencross.
        The smart money is on to it WW

    • The turd on the landscape is MYEFO

      The politburo have seen it and are scrambling to cover their collective arses

      • I’m in that camp

        I suspect the MYEFO turd is either

        a raft of revenue projection revisions and tax hikes and the like

        or

        a rerating threat by a ratings agency which brings another load of potential problems with it

      • @AB

        I would have thought anything like that being envisaged by the Kouk would be pushing the envelope a long way in terms of the return to balance of the life of the budget cycle mantra…

        ……and if it does that the debt issuance envisaged by our banks for the next year may take a different shape

      • Re MYEFO

        I think opportunity exists to make it a biggie: lay down the hard facts, the deficit trajectory, the debt balloon, the implications for the wider economy, the absolute need to get our house in order and to start now.

        Utilise the Murray Report, the today’s Grattan Report, the Tax White Paper as guiding blueprints for necessary reform.

        Make sure the media comprehend the task ahead and call the Senate to account: time to act in the long term national interest and save this country, our children and theirs, from structural economic decline.

        Go hard. Go strong. Go fair.

      • @3d1k

        Exactly – this is the time for brutal reality – not encouragement to spend for Santa.

        Unfortunately Big Joe has spent the past few months telling us how great we are and that we are on the cusp of a new era of prosperity.

        Selling the message, while necessary, may require others at the helm.

      • 3d I sort of agree with you, but

        Go hard. Go strong. Go fair.

        The guys who unveiled the May budget arent the guys to pull off that message (which isnt saying i think there is anyone on the other side who could). TestosterTone and Bariatric Joe need to Go too.

      • Probably for a message like this, Morrison is the man.

        No nonsense, no talking shite, on message, bulletproof.

      • warning, warning, Will Robinson! 3d1k proclaimed “go FAIR”, warning, warning, Will Robinson.

        3d, you have no comprehension of “fairness” and wouldn’t recognise it if it was a White Pointer and it bit your arse off.

        Coming from you it’s so comical it didn’t even raise my bp one point. 🙂

      • Treating people equally without favouritism or discrimination.

        Budget 1 caught flak (much overhyped) on the matter of ‘fairness’ – mostly due to a couple of petty inclusions.

        Next Budget must ensure that along with welfare targeting (in its broadest sense) is a tightening of concessions to the wealthy. We ALL take a little pain.

        Don’t lose control of the narrative!

      • Treating people equally without favouritism or discrimination.

        So you’d be all over a flat 1% assets tax, then ?

      • 3d1k – They can’t do it. To really lay this out they’d have to admit that the Howard Costello myth is just that – a myth and central to our problems. Then you’ve got morons like Malcolm Fraser et al.

        So the Libs rely so totally on this Howard Costello thing to show they are better economic managers. They can’t throw it away.

        OTH Labor have to admit that all the Rudd/ Gillard/ Whitlam policies were so permanently damaging to our economy and society. I haven’t forgotten Keating but…..
        So neither side are ever going to tell it like it is.

      • As an individual Howard is probably the worst economic manager in Australia’s history.

        First he gave us the early 80’s recession and a pile of debt (only paid off 20 years later)

        Then he blew the proceeds of the biggest mining boom since the gold rush, left the budget in structural deficit and allowed foreign debt to spiral to above 50% of GDP – against a nominal GDP which was growing at a 5-6% clip while he was in office (plus a record CAD as a parting gift when he left).

        That can’t be a hard story to tell.

      • “That can’t be a hard story to tell.”

        It could be given that Abbott and Hockey were planning to also rely on the mining boom and constantly increasing private debt.

        Without that they have nothing (as we are clearing seeing now).

    • Gunna – posted this last night – a reminder of exactly what the numbers mean – I suspect they have finally looked at the mortgage debt in Australia, the value of the assets backing that debt, and how that debt was financed.

      Private household debt is at %100+ of GDP – $1.5 Trillion – with almost %90 of that in mortgage debt / investor -when you factor in these numbers are old and miss out on the most recent spikes lets call it $1.5 TRILLION – whats more there are huge write downs on GDP.

      A housing correction which wipes off 50% of the assets backing that $1.5 Trillion means we are at $750 billion in the red.

      An FX correction of $1.10 down to $.50 cents takes that down again wiping out at least a further (25% off shored ) $200 billion leaving Australia a STAGGERING $1 trillion dollars in the red via speculative housing bubble.

      There are simply no words to describe that. Our banks are some of the best performing in the world on the way up – however – on the way down we may well be some of the biggest failures of all time.

      Now also consider that our super is invested in the apartment boom. Our savings. Catastrophic.

      • Not sure who mentioned it before on MB that the AUD falling will be the catalyst for the housing correction…

        Wouldn’t the above numbers give a massive incentive for the RBA to push rates up in order to stabilise the dollar(housing market) in order to ease the above?!

      • I’m more inclined to think the housing correction will be the currency correction, but there is a chance they could feed into each other.

      • PaulF – depends if FIRB gets it together.

        A lower dollar could make Australia more attractive to foreign investors.

        My feeling is that it’s the unemployment numbers. 7.5% is my correction point, collapse in housing and recession.

        …but I’ve been saying that since 2012.

      • @Bubley, that 7.5% will be creeping up in no time and agreed, no job, no wage, no house payment…

        It has been creeping up steadily and now that the Mining boom is over, manufacturing is closing down, even housing is slowing so 1000’s of jobs will be soon gone…

        Grim days ahead unfortunately for many…

    • Maybe Treasury have been pre-warned on an upcoming rating agency statement?

      I can’t understand how we can maintain our rating in this context.

  5. This is what happens when you have a government that lies it’s way into power, breaks promises, tries to talk the economy into a crisis that doesn’t exist, wacks middle Australia with a load of additional costs and things to save for such as higher education costs for probably at least 1 child in many families and additional medical expenses.

    The Abbott trust deficit and the uncertainty on policies and the leadership are not leading to consumer certainty about ability to spend. Every time things appear to be settling some idiot in the coalition shakes them up again, and that idiot is usually Abbott.

    Julie Bishop finger wagging in his face and giving him the death stare is an image seared in my mind. If she can’t trust him, why should I?

  6. Perhaps Brian got the hospital pass and needs a hand?!
    “Hope he got a good interest rate! New Westpac boss Brian Hartzer celebrates promotion with a $12 million mansion…”

  7. I didn’t think I would be doing this for quite some time, however the wife and I just put an offer in on a house in Mornington.

    It is what you would call ‘The Dream House’ and will be our PPOR should the bid be accepted…

    I still believe there will be a crash, although I am more worried about our large pot of savings should that happen.

    • And why wouldn’t you, there is much less risk of housing asset confiscation than fiat confiscation or deflation through negative rates.

      • We have about 35 – 40% saved and the rest will be loan…

        Both the wife and I are disciplined savers and despise debt, so we will be aiming to pay it off as quick as possible….

        I still hate the thought of not seeing our savings lump sum anymore, although not paying off someone else’s mortgage for a change will undoubtedly ease the pain.

        Will still have to commute to work in the Mount Waverley area, although hearing the travel time horror stories of others this past year or so I still think the 30mins on east-link will be a breeze in comparison.

    • I hope you have the funds to top up 40% to maintain 80% LVR when the crash comes in 2015.

      I know most wont.

    • Mornington you say Schaden, plenty of room to break that Barrett, some nice hilly spots too…

  8. Houses, you must be delighted that after a year of calling it, things are now developing just as you have foreseen.
    If you start saying “I am your Father” we should be very nervous.
    The only problem for you now is the number of people agreeing with your view and the individuals who agree with you must have you rechecking the data with a fair amount of discomfort. If Michael Pascoe starts agreeing with you, should we expect a rapid view reappraisal?

    • She tendered her resignation 2 weeks before the Murray inquiry was released.

      Gail is a frighteningly intelligent person and I’d love her opinion on the future of Oz.

      • “Gail is a frighteningly intelligent person and I’d love her opinion on the future of Oz.”

        She certainly has as a remarkable talent for saving her own skin, yes. I don’t think the timing of her resignation was left to chance.

      • Stomper we have all known it’s coming. MB Has been full of it for years.

        Given Gail’s ability to spot coming trends it might be coming sooner and harder than expected.

        2015 is going to be very interesting.

  9. I’m not surprised. Daily news of commodity price falls, Jokers in the Senate, Confusion in the House, lived experience of cost of living detached from CPI, vague sense all is not right in the property market, news of job losses, growing chorus of talking heads warning challenge lies ahead.

    The eerie sound of the penny d r o p p i n g . . .

    • reusachtigeMEMBER

      Why did you leave out the biggest one of all, a clown running the most lame government we’ve ever had?

    • Until very recently most Australians believed the Big Lie that the resources boom would last forever, the dollar would stay high forever, and we were somehow owed a living despite the bleeding obvious that we don’t do anything productive in this country any longer.

      Perhaps there was a nagging doubt in the background before, but this month the penny has well and truly dropped. At these moments of crisis we look to our leaders, and the complete chaos in the government would have been less than reassuring.

      BTW, every time I chat to someone working in the resources sector they always ridiculously optimistic say its going to bounce back. Does the average mining worker have much comprehension of demand-supply balance, spot prices, and what’s going on in China, or do they simple swallow the company line?

      • Haha….they don’t have a f*cking clue mate. That’s how they found themselves in mining to start with. Just like your average real estate agent doesn’t have a f*cking clue just how ugly things are about to turn for them too….

        Oh yeah….the penny is dropping….like an A-bomb.

      • Now where else have I heard something of such optimism and depth… ah yes: “housing never goes down” and “house prices double every 7-10 years” etc. Peas in a pod are such miners and specufestors.

      • The delusion is serious, and our government and treasury spruikers have a lot to answer for. I am aware of several small mining services businesses where the owners have poured money into the business over the last couple of years on the belief that mining would rebound, only to lose it all.

      • “Until very recently most Australians believed the Big Lie that the resources boom would last forever…”

        How is that even remotely believable?

      • They’s have a good idea of the supply situation for HSV Utes – but that’s about it.

        Surely its an imported dual cab these days flawse. This is ‘Straya. We don’t buy Australian-made cars anymore!

      • How is that even remotely believable?

        It was Gospel truth throughout the elite as recently as 2011. The emergence of China was a once-in-a-thousand-years event, China needed to build housing for another 500 million over the next decade, China was building a new Europe every year, etc etc etc.

        Some are still spruiking this nonsense, isn’t that right 3d?

      • Hey AJ, could you provide some names of businesses?

        Also check out Cockatoo coal, they’re about to go bust.

      • It is believed because, if true, it means we can all be rich without working for it. Such is the fantasy land of the childish Australian mind.

  10. Seems like it won’t be a very merry Christmas after all!
    More like consumers will be giving Joe Hockey and Santa a big the middle one!

  11. Tuna to other Tuna: “What was that?”

    Other Tuna:”You mean that shadow?”

    Tuna: “Yeah. It scared me”

    Other Tuna: “Me too!”Swordfish?

    Tuna: “Gosh, I hope not. We’d be goners”

    Other Tuna: “What?” “We’re in a large shoal. We’ll be safe.”

    Tuna: “I’m not so sure”

    Other Tuna: “Why?” “It can’t get us all, can it?

    Tuna: “There’s more than one shadow”

  12. The unfortunate thing is we have all seen how this plays out,

    Interest Rates will go lower , much lower,
    Government will bow to the political pressure to inflate,
    property will be reinflated
    and away we go again……..

    Nothing will ever really change unless global investors see us a real risk and the government starts finding it much more expensive to fund its deficits.

    Until this day, same old same old unfortunately.

    • If the RBA drops rates in Feb they will run out of ammo too soon.

      2.5% does not give them a lot of room to move.

    • No amount of monetary stimulus will prevent what is coming. It’s normal for the average cynic to say we’ve seen it all before and it’s all just a little bit of history repeating….but we’ve never been here before and things are about to get scary.

      • To clarify :

        What i meant is that our government will not change their ways regardless of the economic situation.

        Most MB readers are desperate for change.

        What i am saying is that the worst the situation gets, the more likely we are going to get more of the same in larger doses.

      • This is right but only to a point, Costa. Once past that point (see Spain, US, Ireland etc) expect a meltdown.

        We’re fast approaching…

        🙂

  13. The last time we heard the ‘snap’ the whole world was going to hell in a hand basket…this time it looks like it’s Mostly us on our lonesome

    • That’s a damned good thing – it means you’ve got a fighting chance to get the hell out of Dodge and start a new life.

      • A good time for the kids to up sticks and leave. Go somewhere they’re appreciated.

        … and just think of the second rate reject immigrants that other countries wouldn’t let in that you’ll get. Hundreds of thousands of them per year, all to try to maintain GDP growth.

        Australians voted for it, and now they’re going to get it. This is kharma for ‘stop the boats’.

        Ha ha!

  14. Also during the GFC the banks ran to the gov and told them what was gonna happen if they didn’t get the guarantees…would be interesting to to look at the timing of those behind the door talks.

  15. Wait until the auto-manufacturers fire their workers, and that takes out the component suppliers, and their suppliers in one fell swoop.

    Confidence collapse will be epic. Unemployment increase will be something to behold. And once the foreclosures start in Adelaide, the bogans are going to be livid!

    And there is nothing, nothing on the horizon to employ those people.

    There should be some cheap housing going in Elizabeth so long as you are happy to own a few rottweilers and don’t mind having a plate-steel fence topped with razor-wire.

    This little confidence blip is just the beginning. You ain’t seen nothin’ yet.

  16. This is just a blip on the confidence radar.

    Wait until the car manufacturers and their suppliers go. Cities like Adelaide will be devastated. 10%+ unemployment, anyone?

    Things are just getting started; confidence has a lot of room to drop yet.