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CHART OF THE WEEK: IS AUSTRALIA’S CONSUMER SENTIMENT THE CANARY IN THE COAL MINE?


12 April 2019

Bob Cunneen, Senior Economist and Portfolio Specialist

 

Consumer spending vs sentiment



Source: Westpac Melbourne Institute, Australian Bureau of Statistics and Datastream.

 

The Australian consumer appears subdued.  The Westpac Melbourne Institute (WMI) measure of consumer sentiment (red line) came in at 100.7 in April 2019. This shows that ‘optimists’ only narrowly exceed ‘pessimists’ by 0.7%. Indeed the current WMI sentiment is just below its past decade average of 102, indicating a careful and cautious Australian consumer.

Why is sentiment so subdued? Concerns over falling Australian house prices, slow incomes growth and high household debt seem to be weighing on consumer minds. Global factors may also be a negative contributor such as the global trade tension and the Brexit debacle.

The subdued sentiment result helps explain the slowdown in consumption over the past year. Real consumer spending is running at only 2% annual growth (blue line). This is well below the 2.6% average consumption growth for the past decade. So sentiment seems to be the ‘canary in the coal mine’ for retailers and the corporate sector.

Yet there are some hopeful signs for Australian consumers. The labour market remains solid judging by latest jobs growth. Even the recent Federal Budget should encourage consumers to lift the sentiment and spending with a $7 billion tax rebate to low and middle income earners. So the Australian consumer canary is still on its perch, but does need to get more chirpy about the future.        

 

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