The Westpac–Melbourne Institute Consumer Sentiment Index increased by 2.8% in August, rising to 85 from 82.7 in July. This marks an improvement in consumer sentiment for the month.
Notably, views on family finances showed some recovery compared to the previous month, although they remain generally weak. The rise in sentiment appears to reflect clearer signs of support from recent tax cuts and fiscal measures.
Additionally, consumers are now less concerned about potential further interest rate hikes than they were in July. The outlook for employment remains positive, with Australians showing little concern over job security. However, home-buyer sentiment has deteriorated, reaching new lows as expectations around property prices have cooled.
Consumer relief after unchanged rates
Consumers breathed a sigh of relief in August as the Reserve Bank of Australia (RBA) Board decided to keep interest rates unchanged, and the effects of tax cuts and other fiscal measures became more evident.
Despite this, the Index remains weak by historical standards, persistently hovering within the 78-86 range that has dominated for more than two years. The survey indicates that concerns about the cost of living and potential rate hikes continue to weigh heavily on consumers.
While there was a noticeable improvement in sentiment around family finances, the overall picture remains fragile. The ‘family finances compared with a year ago’ sub-index jumped 11.7% in August, marking the largest monthly gain in nine years (excluding the COVID period), reaching 70.9 - a two-year high, though still weak overall.
This increase was particularly pronounced among low-income earners, 18-34 year-olds, those over 65 and residents of South Australia, Queensland and Victoria.
Expectations for future finances also improved, with the ‘family finances, next 12 months’ sub-index rising 5.1% to 96.8, its highest level since the interest rate tightening cycle began in May 2022. However, both sub-indexes remain in the bottom 15% of monthly readings since the mid-1970s.
Other sentiment indicators showed more modest and mixed changes.
While consumers were slightly less pessimistic about the near-term economic outlook, their medium-term view became more downbeat.
The ‘economic outlook, next 12 months’ sub-index rose 2.4% to 83.3, but the ‘economic outlook, next 5 years’ sub-index fell 3.2% to 91.5. The ‘time to buy a major item’ sub-index edged up 0.6% to 82.6, still well below its long-run average of 124.
What about future rate increases?
Concerns about future rate increases also eased. The Westpac-Melbourne Institute Mortgage Rate Expectations Index fell 14.9% in August, reversing much of the 36% surge observed over the previous three months.
The index now sits at 135.5, below its historical average of 143.7. Additionally, 45% of consumers surveyed after the RBA decision expect mortgage rates to rise over the next year, marking the first sub-50% reading since May.
Job stability
Consumer sentiment around jobs remains relatively stable, although the Westpac-Melbourne Institute Unemployment Expectations Index rose slightly by 3.8% to 133.5 in August, indicating a slight increase in concerns about unemployment.
There is more anxiety among those employed in professional services, the public sector and hospitality and recreational services, while job-loss fears have significantly eased among those in construction.
No time to buy
Home buyer sentiment continued to decline, reaching new lows in August. The ‘time to buy a dwelling’ index fell 5.8% to 71.4, the lowest level for the year. Sentiment was particularly weak in New South Wales (66.1) but slightly less negative in Victoria (76.9) and South Australia (76.0).
Nationally, the index has been below the 80 mark for two and a half years, marking the most prolonged period of depressed home-buyer sentiment in the survey's history.
The Westpac-Melbourne Institute Index of House Price Expectations also declined 2.1% to 157.8, with price expectations notably subdued in Victoria.
Looking ahead, the RBA Board's next meeting is scheduled for September 23-24. The Governor has indicated that rate cuts are unlikely in the short term and forthcoming data is not expected to significantly alter the inflation outlook. Consequently, it seems probable that the Board will maintain the current cash rate at its next meeting.