Australia's consumer sentiment falls 3.1% on economic angst

A measure of Australian consumer sentiment eased back from 3-1/2-year highs in September as concerns about the economic outlook overshadowed a continued improvement in family finances, a survey showed.

A Westpac-Melbourne Institute survey showed its main index of consumer sentiment fell 3.1 per cent to 95.4, having jumped 5.7 per cent in August to its highest since early 2022.

The reading under 100 means pessimists still outnumber optimists.

'Outright optimism remains elusive for Australian consumers,' said Matthew Hassan, Westpac's head of Australian macro-forecasting. 'The cost-of-living crisis may be largely over and policy easing generating some uplift but there is still clearly some unease about the path ahead.'

Sentiment has slowly picked up in recent months as the Reserve Bank of Australia cut interest rates three times and inflation cooled steadily.

Crucially, consumer spending also revived in the second quarter to lift the broader economy and further strength might limit the need for deep cuts in rates.

On the bright side, the survey's measure of family finances compared to a year earlier rose 2.6 per cent, adding to a big bounce in August, while the outlook for the next 12 months edged up 0.9%.

People cross the street in the Sydney Central Business District, in Sydney, Australia. Reuters

However, the economic outlook for the next year fell back a sharp 8.9%, while that for five years dropped 5.9%. In a potential blow to retailers, the index of whether it was a good time to buy a major household item also fell 3.4% to 98.2.

'This measure has been particularly sensitive to the decline in purchasing power since 2022, falling into a deep hole through 2023 and most of 2024,' noted Hassan. 'Despite a 23% rise since June last year, the sub-index is well below its long-run average read of 124.'

Meanwhile a measure of Australian business conditions picked up in August as firms reported better profits and employment, while input costs grew at the slowest pace since 2021 in a promising sign for inflation and margins.

The survey from National Australia Bank showed its index of business conditions rose two points to +7 in August, taking it back to the long run average. A more volatile index of business confidence eased 4 points to +4, but again was around the long run trend.

'Regions and industries in the economy which have faced headwinds in recent years have showed positive signs in recent months, adding to our confidence that the broader economy is on a better trajectory in the second half of the year,' said NAB's chief economist, Sally Auld.

Official data out last week showed the economy grew at its fastest pace in two years in the June quarter as consumer spending finally responded to lower borrowing costs and cooling inflation.

The improvement in consumption looks to be lasting with the survey's measure of business sales holding firm at +12 in August, while profitability bounced 2 points to +4.

Cyclically sensitive sectors including manufacturing and retail both saw gains in confidence and conditions.

In a welcome sign for the labour market, its measure of employment rebounded 3 points to +6, recouping all the drop seen in July. Forward orders also ticked up a point to +1, the first move into positive territory in two years.

Price indicators in the survey all eased back in the month with purchase costs running at a quarterly rate of just 1.1%, the smallest increase since 2021.

Quarterly growth in retail prices halved to 0.5%, while labour costs slowed to 1.5%, from 1.9%.

Reuters