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Four in 10 expect to cut Christmas spending, Westpac index shows, as inflation, rates and energy prices hit home.
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Consumer sentiment plunges to recession levels
09 November 2022
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Consumer sentiment plunged almost 7 per cent last week to hit recession levels and presages a grim Christmas with 40 per cent of consumers looking to cut seasonal spending.
The findings, in the latest Westpac Melbourne Institute survey, showed inflation and interest rates were “weighing heavily on family finances” and consumers were “unnerved” by forecasts of a 56 per cent increase in electricity prices over the next two years.
The index, at 78 points, had fallen below its nadir during the global financial crisis and was only marginally higher than when the COVID pandemic first struck, Westpac chief economist Bill Evans said.
He said confidence in the labour market was weakening, house prices were heading to the lows of four years ago and the budget had “been poorly received in terms of its immediate support for household finances”.
One reason for the decline was an expectation of further interest rates rises, with 60 per cent of respondents expecting the rate to increase by 1 percentage point over the next year.
An additional question in the November survey highlighted the sombre Christmas mood.
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“Christmas spending plans are very subdued this year. Nearly 40 per cent of consumers expect to spend less on gifts this year – the highest proportion planning cutbacks since we started asking the question in 2009.”
Treasury secretary Steven Kennedy echoed the gloomy prognosis in an opening address to the Economics Legislation Committee yesterday.
“Strong consumption growth of 6.5 per cent in 2022–23 is expected to be temporary, driven primarily by the ongoing rebound in services spending and international travel as the impacts of pandemic activity restrictions continue to wane,” he said.
“By early 2023, the services-driven recovery is expected to ease, with consumption growth slowing to 1.25 per cent in 2023–24. And as more mortgages roll off fixed-rate terms, an increasing number of households will see the impact of increasing interest rates on their budgets.”
“Declining household wealth arising from ongoing expected falls in housing prices will further contribute to the slowing of consumption growth.
“Workers at the lower end of the income distribution are expected to be impacted most sharply by the rising cost of essentials, as the cost of food, housing and energy make up a larger share of their spending.”
The Westpac survey revealed consumer sentiment fell most sharply among those with a mortgage, down 15.7 per cent to 68.4 points against the overall figure of 78. Older age groups also recorded steep declines.
Confidence about the jobs outlook was also on the wane, with more expecting unemployment to rise over the next year for the second consecutive month, indicating “a turning point” in labour markets.
House buyer attitudes were also near historic lows with the RBA’s November interest rate decision having a “significant impact”.
Mr Evans expected the RBA to raise rates another 0.25 percentage points in December and add 0.75 percentage points to rates between now and next May.
“We expect spending to slow markedly in 2023, something that is necessary to ensure inflation comes back to the Reserve Bank’s 2-3 per cent target,” he said.
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