Consumer sentiment still falling despite rate pause

    • Westpac-Melbourne Institute Consumer Sentiment down 1.5% to 79.7.
    • Households less fearful of rate hikes; confidence up 7.8% for mortgagors.
    • Cost of living and inflation remain the key drags.
    • Households still very concerned about finances and cautious on spending.
    • Job confidence stabilises around long run average – down 33% from peaks.
    • Improving rate outlook continues to lift house price expectations.

“The Westpac-Melbourne Institute Index of Consumer Sentiment slipped 1.5% to 79.7 in September from 81.0 in August.”

“Sentiment has languished at deeply pessimistic levels for more than a year now. Since the survey began in 1974, the only comparable period of such sustained weakness was during the recession of the early 1990s when even weaker levels held for more than two years. Persistent pessimism has continued despite easing fears of further interest rate rises. This has seen a clear lift in the confidence of mortgage holders, up 7.8% in the latest month. However, this gain was more than offset by a 6.1% fall in the confidence of renters and a 5.8% fall in the confidence of consumers that own their home outright.”

“The strong message from survey detail is of ongoing intense pressures on family finances. Most notably, the sub-index tracking assessments of finances compared to a year ago recorded another 4.4% fall and is now at its lowest level in this current cycle.”

“When asked about the news items that resonated the most in September, the topics with the highest recall amongst consumers are: inflation (53%), budget and taxation (34%); economic conditions (34%); interest rates (25%) and employment (23%) … The cost of living remains the key negative for confidence in this cycle. While the ‘threat’ of rising rates is expected to ease further, a sustained recovery in confidence will only emerge when households are much more comfortable with the cost of living.”

“The Westpac-Melbourne Institute Unemployment Expectations Index rose 2.8% to 130.8 in September, nudging back above the long run average of 129 (recall that higher index reads mean more consumers expect unemployment to rise in the year ahead). The index has been moving sideways since mid-year after surging 32% over the previous 12 months. That suggests labour market conditions have softened on a year ago but have not deteriorated further since the middle of 2023.”

“The ‘time to buy a dwelling’ index posted a very slight 0.6% gain but at 72.5 remains at very weak levels overall. The Westpac Melbourne Institute House Price Expectations Index rose a further 2.2% to 154.6, a new cycle high. Over 65% of consumers expect prices to rise over the next 12 months. The Index is now 70% above the recent low in November 2022 and only 5.5% below the peak during the housing boom in 2021.”

“Consumer risk aversion eased a touch after hitting new record highs back in June. Updates on our ‘wisest place for savings’ questions, run every three months, show ‘safe haven’ options and paying down debt continue to be heavily favoured. Over half of all consumers nominate either ‘bank deposits’ (33%) or ‘pay down debt’ (23%) as the wisest place for savings.”

Read the press release

The Westpac–Melbourne Institute Consumer Sentiment Index for September 2023 was released at 11am (AEDT), Tuesday 12 September 2023. The index for October 2023 will be released at 11am (AEDT), Tuesday 10 October 2023.

The Westpac–Melbourne Institute Survey of Consumer Sentiment Index measures changes in the level of consumer confidence in economic activity. Further information can be found here.

More Information

Dr Viet Nguyen

03 9035 3621

  • Consumer Sentiment