The Westpac-Melbourne Institute Consumer Sentiment Index has been released and reveals that sentiment has crashed to a four-year low:
The November fall was driven by a sharp deterioration in the near-term economic outlook. Over 70% of consumers expect mortgage rates to rise further over the next year, and expectations for house prices also took a big hit.
Consumers also expect unemployment to rise gradually, and they have also curtailed their Christmas spending plans.
Matthew Hassan, Head of Australian Macro-Forecasting at Westpac, noted that these “deeply pessimistic” readings are reminiscent of recession, particularly among mortgage holders:
“Australian consumers remain deeply pessimistic, sentiment continuing to plumb extreme lows”, Hassan wrote. “At 78.2, the November Index read is the lowest since late 2022, when annual inflation was running at close to 8%yr and the RBA raised the cash rate by 4ppts in little over a year”.
“Prior to that, readings this weak had only ever been seen in the economy’s darkest moments: at the onset of the COVID pandemic; the height of the GFC; and during the recessions in the early 1990s and early 1980s”.
“Cost-of-living concerns remain front and centre. The last month has seen petrol prices push towards $2.40/litre, official inflation measures hit 4.3%yr and the RBA raise the cash rate by another 25bps to 4.85%, an 18yr high”.
“The situation has hit consumers with a mortgage particularly hard, sentiment across this subgroup dropping 11.6% in November to just 68.1, a record low on measures going back to 1994”.
“Consumers are bracing for more rate rises… 72%, a clear majority, expect mortgage rates to increase further over the next 12 months. This compares to 80% last month and 64% in September”.
Hassan also notes that consumers have turned bearish on house prices:
“Consumers are no longer positive about the house price outlook. The Westpac–Melbourne Institute Index of House Price Expectations recorded a steep 13.4% drop to 99.6 in November. This is the second biggest monthly deterioration since the COVID period and the first net negative (sub-100) read since November 2022”.
The following table breaks down the movements in the sub-indices:
Last week’s 25 bp rise in the official cash rate by the Reserve Bank – the fifth hike this year – may have been the straw that broke consumers’ backs.
