Australia / Spotlight Reports
January Economic Update: Consumer Sentiment Index

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by Tommy Wu
Jan 23 2020

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 1.8% in January to 93.4. Consumer sentiment has fallen further into negative territory following December’s reading of 95.1, with the bushfires being the main driver behind the decline. Compared with the same time last year, the consumer sentiment index is 6.2% lower. Previous sentiment index readings in November 2019 showed a jump in the index, but that was largely due to the effects of Black Friday retail sales, and consumer sentiment has remained in negative territory (below 100) since August 2019. To put it into context, consumer sentiment has only fallen below the current level seven times since the global financial crisis in 2008-09. In addition, prior to October 2019 (when the reading was 92.8), the last time it fell below 93.0 was July 2015. Without a significant boost in upcoming December and January retail sales data releases, we do not expect sentiment to rebound significantly.

Despite more positive sentiment surrounding the economy, such as a stronger sharemarket and easing trade tensions between the US and China since the start of the year, household expectations for the economy over the next 12 months and next five years has declined. However, households’ evaluation of their own finances over the past year and into the next year has risen slightly with growth in the housing market. Furthermore, the Time to Buy a Dwelling Index increased in January as housing prices picked up towards the end of the last year and households’ expectation of residential property prices improved, as highlighted by the strong rise in the House Price Expectations Index over the past month.