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Interest rate rises have done more to dampen the confidence of consumers than businesses, according to surveys from Westpac and NAB.
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Glimmer of hope in consumer mood, business cautiously confident
11 October 2023
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Consumer confidence saw a slight uptick from deeply pessimistic territory in September while easing cost pressures kept business confidence positive, according to two surveys released on Tuesday.
The Westpac-Melbourne index found consumer sentiment crept up 2.9 per cent to 82 points in October but “optimism remains in extremely short supply” as rate pauses failed to translate into marked improvements for households.
One indicator of household spending, the “time to buy a major household item” sub-index, surged by 7.6 per cent.
“If sustained, the lift may be signalling that the inflation situation for consumers is starting to improve,” the survey said.
However, it was overshadowed by consumers’ attitudes towards more rate rises.
Over 60 per cent of consumers surveyed expected mortgage interest rates to rise over the next year against only 5 per cent expecting a cut, down from 15 per cent last month.
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Westpac senior economist Matthew Hassan said household spending would be weak in the near term.
“Today’s release again highlights the main negative at play: intense pressures bearing down on the Australian consumer,” he said.
A separate survey from NAB Group Economics sounded a more positive note for businesses.
Business conditions including trading, profitability and employment conditions in NAB’s index continued above their historical average levels, despite the index slipping 3 points to +11 in September.
Chief economist Alan Oster said conditions remained above average for businesses, pointing to the ongoing resilience of their business activity.
“The conditions index has been hovering around its current level of +11 index points since May, suggesting the economy has remained in reasonable shape through the middle of the year,” he said.
Forward orders rose two points to +2 index points. Businesses’ productive capacity utilisation edged down but at 84.2 per cent, but Mr Oster said it remained “very high”.
Business confidence was also steady at +1 index point amid easing cost pressures and price growth.
“The September survey results suggest the momentum of some of the key cost pressures driving inflation may have started to step back in a welcome sign for the broader inflation outlook,” he said.
“Business confidence, like the conditions index, has been broadly steady for a number of months now.”
Labour cost growth fell to 2 per cent in quarterly equivalent terms.
Purchase cost growth declined to 1.8 per cent, continuing on a broadly downward trend after peaking in July 2022 at 5.2 per cent.
“Minimum wage impacts and movements in oil prices have caused some volatility in cost pressures recently but the September survey results suggest the easing trend seen earlier in the year may continue,” Mr Oster said.
Price growth in “recreation and personal services” eased to 0.8 per cent while overall price growth also fell to 1 per cent. “Whether this recent moderation in services prices is sustained will be a key factor shaping the outlook for inflation over the coming months.”
While the CPI rebounded to 5.2 per cent in the 12 months to August, the RBA kept rates on hold for the fourth consecutive month last week at 4.1 per cent.
The bank however flagged the possibility of further rate increases to ensure inflation returned to its target range of 2–3 per cent in a “reasonable” time frame.
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