Australia: Consumers in a considerably brighter mood - Westpac

Analysts at Westpac suggest that their first Red Book for 2018 finds Australian consumers in a considerably brighter mood, the Westpac–Melbourne Institute Consumer Sentiment Index having recovered convincingly from its September quarter slump and posting its best start to a calendar year since the beginning of the decade.

Key Quotes

“The lift goes beyond the usual holiday cheer and is a welcome change from the recurring gloom that has dogged the Australian consumer, undermining demand and the wider economy over the past four years.”

“That said, the more positive tone should not be overstated. The headline index is back in ‘cautiously optimistic’ territory rather than outright bullish. And while the survey detail carries some promising positives – around expectations for the economy and labour markets in particular – there are also still clear areas of weakness around family finances, housing and continued high levels of risk aversion.”

“Incomes are under pressure and consumers look reluctant to spend – possibly even looking to lift savings instead.”

“In this month’s report we take a closer look at the puzzling picture around household labour incomes. Despite a record year for job gains in 2017, weak wage inflation and a range of structural factors have kept growth in aggregate labour incomes very weak. While some of these factors are transitory others are likely to be more enduring features that continue to restrain incomes and sentiment in 2018.”

“For the rally in consumer sentiment to be more convincing, it will need to sustain and extend – a further step-up into the 110+ range is required. We may see some more uplift as conditions continue to improve in the mining states. However the prospect of lingering pressures on incomes suggests the ‘persistent weakness’ in Australia’s household sector will be harder to shake.”