Australia: Consumer mood has caught another updraft – Westpac

Heading into the second half of 2018, the Australian consumer mood has caught another updraft, according to analysts at Westpac.

Key Quotes

“The latest  Westpac-Melbourne Institute Consumer Sentiment Index  shows a sustained lift, tax cuts announced in the May Budget and implemented in June-July providing a clear boost to expectations. At 106.1, the Index has moved from ‘faintly’ to ‘firmly’ optimistic territory.”

“Tax developments aside, the more balanced growth profile across states has also been an underlying positive over the last year. Whereas during the mining downturn there was a regular 10pt spread between sentiment in mining and non-mining states, that wedge has narrowed to less than 5pts in 2018.”

“Other aspects of the survey detail are less promising. Responses continue to point to pressures on family finances, with spending-related measures showing a more muted lift in recent months as well. Last year’s steadily improving sentiment around the labour market also looks to have lost its way and risk aversion remains elevated with no signs that it will relax any time soon.”

“Certainly consumers’ increasingly downbeat assessments of prospects for the housing market suggest they will continue to take a ‘safety first’ approach to financial decisions.”

“Indeed the house price correction in Sydney and Melbourne now looms as a significant downside risk to the consumer outlook.”

“The bottom line is that its unclear how much this particular factor may weigh on the consumer, although risks are clearly to the downside. If they materialise, the current optimism could quickly fade, particularly if developments in the wider economy do not match the recent lift in expectations.”