Consumers seem to have taken a step back, according to recent figures tracking spending habits.
The Westpac Melbourne Institute Index of Consumer Sentiment fell by 2.1 per cent in October from 110.6 in September to 108.3 in October.
However, despite the drop, Westpac chief economist Bill Evans said the figures can still be viewed positively, if compared with past results.
"This is a solid result. It follows the 4.6 per cent jump in the Index in September – a result largely influenced by the expected election result. The Index is still 2.5 per cent above the level in August and 9.2 per cent above its level a year ago. Apart from last month it is the highest read for the Index since March this year.
“The modest fall in the Index is probably due to an expected retreat following the positive expectations around the election result. Other factors that might have weighed on the
Index were the steady fall in the sharemarket through the survey week (down 2 per cent) and the steady rise in the Australian dollar (up from USD 0.93¢ to 0.94¢) through the survey week.”
He commented that the shutdown of the US government and media speculation around a US government default could also have unnerved respondents, and cited the disappointment last month as due to the failure of respondents to “‘mark up’ their confidence around their own finances”.
“The sub-index tracking consumers’ expectations for their finances over the next 12 months rose by only 1.6 per cent in September whereas the subindex tracking assessments of finances relative to a year ago actually fell by 1.9 per cent. In the October survey the 12 month outlook index dropped by a significant 5.5 per cent while the comparison with a year ago improved by 0.7 per cent. In fact both measures are now below their pre-election levels,” Evans said.
“This lack of response around people's assessments of their own finances raises some doubts as to whether the healthy reads of the overall index will spur consumers out of their current spending torpor.
“There has been undoubted improvement in the sub-index tracking views on ‘whether now
is a good time to buy a major household item’, improving by 6.9 per cent in September and a further 3.2 per cent in October. However, in this cycle, this index component has been consistently strong without any pick-up in consumer spending.”
Evans added that respondents continue to remain concerned about jobs.
“The Westpac Melbourne Institute Index of Unemployment Expectations rose in October by 0.6 per cent in October, indicating more consumers expect unemployment to rise over the year ahead. The Index is 10.1 per cent above the level in November 2011 (the date of the first rate cut in this cycle), indicating significantly more heightened concerns around job prospects than at that time,” he said.
Going forward Evans noted that there could be changes on the horizon.
“The Reserve Bank board next meets on November 5. While we expect that there will be further rate cuts in this cycle a cut is unlikely to come as soon as November.
“Developments in the housing market, particularly around the recent uplift in Sydney property prices, will also be considered by the Bank. We expect that rate cuts will resume early next year. In those respects today's survey shows a high outright level of overall consumer confidence although respondents remain cautious about their own finances.”