October consumer sentiment index shows easing pessimism
The Westpac–Melbourne Institute Survey of Consumer Sentiment has revealed a 6.2 per cent increase in sentiment for October.
Consumer sentiment has increased 6.2 per cent to 89.8 In October up from 84.6 in September, according to the Westpac–Melbourne Institute.
Westpac head of Australian macro-forecasting Matthew Hassan said this was the most promising update to be seen over the cycle to date.
“While pessimism still dominates, the October consumer sentiment read is the best since the RBA interest rate tightening phase began two and a half years ago,” he said.
“Expectations have been buoyed by interest rate cuts abroad and more promising signs that inflation is moderating locally.”
The results highlighted that consumers were no longer worried about increasing interest rates, however, the progress on cost-of-living pressures remained slow.
A shift in the Westpac-Melbourne Institute Mortgage Rate Expectations Index also experienced a shift in consumer views.
The index, which tracked consumer expectations for variable mortgage rates over the next 12 months, dropped 14.1 per cent to 106.4 in October, down a third since July.
According to Hassan, this was the lowest the index had been since the RBA was actively easing policy during COVID-19.
This number demonstrated that half of consumers believed mortgage rates to be unchanged or lower over the next 12 months, compared to only a quarter of consumers in July.
The headline consumer sentiment index captured responses on family finances, economic outlook and purchasing of household items.
The results reflected an improvement for all sub-indexes in October, however, the biggest shifts surrounded economic expectations.
The economic outlook over the next 12 months index saw a 14.3 per cent increase to 92.8, while the economic outlook over the next five years index rose 8 per cent to 97.8.
This placed both indexes slightly above their long-run averages for the first time since May 2022.
Intense cost-of-living pressures were still prevalent, though were expected to stabilise over the year ahead with both family finance indexes experiencing a 2.8 per cent increase.
However, the ‘family finances vs a year ago’ index remained “deeply negative” at 73.8 and the ‘family finances, new 12 months’ index was close to the “neutral level” at 99.7, according to Hassan.
“This neutral level means the proportion of consumers expecting their finances to improve is roughly the same as the proportion expecting a deterioration,” Hassan said.
“Again, some consumers with a mortgage are showing a larger improvement since May, with this sub-index up 10 per cent for this sub-group compared with a 3.8 per cent gain across consumers more broadly.”
Another index that saw an increase in October included the ‘time to buy a major household item.’
This index rose 3 per cent to 85.1 in October, still below the long-run average of 124.2.
Hassan said this measure and consumer views on family finances were more closely correlated with actual spending, suggesting demand would remain subdued.
The results also highlighted a 2.5 per cent rise to 78 in the ‘time to buy a dwelling’ index.
“While buyer sentiment remains deeply pessimistic, this is the highest read since the start of last year,” Hassan said.
First home buyer sentiment rose in Queensland and South Australia, however, fell sharply in Western Australia and Victoria.
Finally, the Westpac-Melbourne Institute Index of House Price Expectations rose 1.8 per cent to 153.2.
Hassan said despite the gain, the index was still off its most recent high of 163.8 recorded in June.
Though the cash rate target was likely to remain unchanged for the remainder of the year, it was expected for the board to make significant changes to its “hawkish hold” recently communicated, Hassan said.
“There should be enough additional comfort around the inflation outlook for the Board to start to relax its ‘vigilant’ stance on policy.”
“As our October survey highlights, that will come as welcome relief for consumers even if actual progress in cost-of-living pressures continues to be slow.”
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