Household sentiment improves in September; “truly remarkable”

Summary: Household sentiment improves in September; resilience of consumer sentiment “truly remarkable”; above long-term average; Queensland, New South Wales improve, Victoria unchanged; access to vaccine “key factor behind these results”; four of five sub-indices higher; unemployment index lower.

After a lengthy divergence between measures of consumer sentiment and business confidence in Australia which began in 2014, confidence readings of the two sectors converged again in mid-July 2018. Both readings then deteriorated gradually in trend terms, with consumer confidence leading the way. Household sentiment fell off a cliff in April 2020 but, after a few months of to-ing and fro-ing, it then staged a full recovery.

According to the latest Westpac-Melbourne Institute survey conducted in the second week of September, household sentiment has improved modestly. Their Consumer Sentiment Index increased from August’s reading of 104.1 to 106.2.

“The resilience of consumer sentiment in a period when Australia’s two major cities have been locked down and the economy has been contracting is truly remarkable,” said Westpac Chief Economist Bill Evans.

Any reading of the Consumer Sentiment Index above 100 indicates the number of consumers who are optimistic is greater than the number of consumers who are pessimistic. The latest figure is above the long-term average reading of just over 101.

Domestic Treasury bond yields fell on the day, largely in line with the overnight movements of their US Treasury counterparts. By the close of business, the 2-year ACGB yield had shed 3bps to 0.33%, the 10-year yield had lost 4bps to 1.24% while the 20-year yield finished 5bps lower at 1.84%.

In the cash futures market, expectations of a change in the actual cash rate, currently at 0.03%, remained largely unchanged. At the end of the day, contract prices implied the cash rate would rise to 0.185% by December 2022.

Confidence levels largely improved in the three largest states. Queensland recorded the largest rise, while New South Wales also improved and Victoria remained unchanged.

Evans suggested access to the vaccine “appears to be a key factor behind these results”. He noted respondents who are unvaccinated but are intending to become vaccinated were much more confident than those who had received at least one dose. In contrast, respondents unwilling to be vaccinated or who are undecided were much more pessimistic.

Four of the five sub-indices registered higher readings, with the “Economic conditions – next 5 years” sub-index posting the largest monthly percentage increase. As in the July and August surveys, the “Time to buy a major household item” sub-index posted another decline.

The Unemployment Expectations index, formerly a useful guide to RBA rate changes, declined from 124.6 to 120.5.Lower readings result from fewer respondents expecting a higher unemployment rate in the year ahead.

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