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Australia / Analyst Insights
Economic Update: Consumer Sentiment Index, Nov 2019

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by Michael Youren
Nov 13 2019

Released yesterday, the Westpac-Melbourne Institute Index of Consumer Sentiment measure for November 2019 remained negative but rose 4.5% on October’s reading, reaching 97.0. The index, produced monthly, had a value of 92.8 in October and is the most widely used reading of consumer sentiment nationally. The number is calculated as an average of the weighted responses to questions surveyed around five sub-indexes that measure Australian’s economic expectations. The 1,200 responders are asked questions including retail and household purchase intentions. A reading of 100 in each sub-index denotes that the number of positive responses is equal to the number of negative responses to the surveyed questions. As a result, the current reading of 97.0 means that a greater number of those surveyed are feeling pessimistic about the economic outlook than those that are feeling optimistic.

The reasons for the rise in sentiment over the past month are largely believed to be due to the Reserve Bank of Australia’s decision to leave the cash rate unchanged in November. This follows the previous month’s decision to cut the rate by 25 basis points, along with cuts in June and July this year. While rate cuts have been undertaken to stimulate the economy, many consumers have been unnerved as they take these decisions as a sign that the economy has weakened. This pattern of confidence falling and then stabilising following cash rate cuts was also recorded in July and August of this year. Growth in several markets, such as housing price growth and the ASX are seen as contributing factors that have driven growth in sentiment over the past month.

However, the reading remains negative and continues the trend of negative or balanced consumer confidence over the past five months. Factors that have contributed to broader negative sentiment include slow wage and economic growth locally, as well as broader concerns around international markets and global geopolitical tensions. Consumer confidence is seen as especially important in November and December months, as it can have significant ramifications on the Christmas retail season. As a result, this measurement is likely to be closely observed by economic decision-makers.