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Family finances looks especially bleak for mortgage holders, the Westpac-Melbourne Institute February survey shows.
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Consumer confidence plunges to recession levels
14 February 2023
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Consumer sentiment has fallen sharply to recession levels in the wake of last week’s rate rise with mortgage holders especially bleak about finances this year, according to the latest Westpac-Melbourne Institute Bulletin.
The February Consumer Sentiment Index released today has dropped to 78.5 from 84.3 in January, taking it back to the gloom of last November and below the most pessimistic point in the global financial crisis.
Most consumers now expect interest rates to rise by a full percentage point or more this year and four out of five expect some increase.
Senior economist Matthew Hassan said after a modest Christmas rally the index was now only just above when the pandemic hit three years ago.
“Cost of living pressures and interest rate rises continue to weigh heavily. Hopes of some easing in both have been dashed by the strong December quarter CPI and the RBA’s resumption of its interest rate tightening cycle.”
With inflation hitting a three-decade high of 7.8 per cent in the year to December, the RBA raised the cash rate to 3.35 per cent last week and signalled more rises to come.
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The Westpac-Melbourne Institute survey showed a steep decline in confidence around family finances, with a February fall of 8 per cent in that sub-index – the weakest reading since the depths of the early-1990s recession. Among mortgage-holders it was down 14.4 per cent, the bleakest outlook in the survey’s history.
“Attitudes towards major household purchases showed a particularly big fall to a very weak level. The ‘time to buy a major household item’ sub-index plunged 10.1 per cent to 78, miles below the long-run average of 126.”
Mr Hassan said confidence around jobs was the sole positive but there were signs of rattled confidence with more expecting unemployment to rise.
The survey also found extremely negative attitudes to housing, with the “Time to buy a dwelling” sub-index dipping to a fresh post-GFC low.
“The Reserve Bank Board next meets on March 7. We expect the board to raise the cash rate by a further 0.25 percentage points to 3.6 per cent, pausing in April before a final 0.25ppt increase to 3.85 per cent in May.”
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