Australian Consumer Confidence Wanes Despite Signs of Stability

People shop in the confectionery section of a supermarket in Western Australia on May 4, 2024. Susan Mortimer/The Epoch Times

Consumer sentiment in Australia declined for the second consecutive month in January, with the Westpac Consumer Sentiment Index falling by 0.7 percent to 92.1 points. An index value below 100 indicates pessimism.

While sentiment remains on the pessimistic side, it is notably less negative than the same time last year.

The survey, conducted from Jan. 6–9, revealed a mixed outlook, with consumers’ weaker assessment of family finances reversing December’s gains.

Chief among the concerns are cost-of-living pressures and a depreciating Australian dollar, which may have dampened optimism.

Interestingly, sentiment varied significantly within the survey period. Early responses were more positive, while the latter days of the survey saw declines.

Analysts found that geopolitical factors could not clearly explain the shift, suggesting that consumers may have been more influenced by news of the depreciating dollar.

Family Finances and Spending Outlook Paint a Mixed Picture

The sub-index measuring consumers’ financial standing compared to a year ago dropped sharply by 7.8 percent in January to 77.7, particularly among outright homeowners and renters.

However, homeowners with a mortgage saw a 15 percent increase in this measure, reaching levels not seen since 2022.

This improvement for mortgagors may reflect the impact of last year’s tax cuts on take-home pay, though it remains tempered by broader cost-of-living challenges.

Forward-looking measures showed greater stability. Expectations about family finances for the next 12 months rebounded after December’s dip, while views on the economy in five years’ time showed a modest 0.7 percent improvement.

Despite these gains, confidence remains fragile, with broader economic pressures keeping overall sentiment subdued.

Meanwhile, the Australian Bureau of Statistics (ABS) reported a 0.4 percent rise in household spending in November, driven by Black Friday sales.

Spending on discretionary items such as clothing, footwear, and recreation rose, buoyed by strong growth in cinema attendance and new vehicle purchases.

Sentiment’s Influence on Consumption and Policymaking

Consumer sentiment remains a critical barometer for economic activity. Research by economists Christian Gillitzer and Nalini Prasad for the Reserve Bank of Australia highlights how shifts in sentiment directly affect consumption patterns.

Their findings suggest that sentiment-driven spending, particularly on discretionary items such as vehicles, often reflects broader economic confidence.

The research noted that sentiment is not merely a reflection of expected income changes but represents a unique and influential economic factor.

“Divergences between consumer sentiment and macroeconomic data provide valuable insights into future consumption trends,” the study concluded.

This nuanced relationship between sentiment and consumption is vital for policymakers, as efforts to stabilise confidence are critical for maintaining economic momentum.