Aussie consumer confidence indices scream recession

The weekly ANZ-Roy Morgan consumer confidence index has been released with confidence plunging another 2.5% amid concerns over the economic outlook and household finances following last week’s 0.5% rate hike by the Reserve Bank:

Consumer confidence still falling.

‘Weekly inflation expectations’ rose 0.1% to 6.0%, the first time inflation expectations registered a ‘6’ since late March:

Inflation expectations rise toward peak.

All five sub-indexes posted losses. ‘Economic conditions next year’ had the sharpest slide, down 5.6%, followed by ‘Financial situation next year,’ down 2.5%:

Consumers negative on economy and finances.

Commenting on the result, ANZ Senior Economist Felicity Emmett noted:

Consumer confidence declined for a second straight week, driven by concerns about both the economic outlook and household finances. The RBA’s 50bp rate hike last week weighed on sentiment, with confidence falling for those people paying off a mortgage by a sharp 5.4%.

This continues the trend in place since late April when the high March quarter inflation report brought forward rate hike expectations. Since then, confidence amongst mortgage holders has fallen 25%, while confidence for renters is down just 4%. Inflation expectations lifted as petrol prices hover near record highs. Global oil prices dropped last week, boding well for Australia’s retail petrol prices over the coming weeks.

The next chart plots the consumer confidence index over the very long term, with confidence tracking at its lowest level since the early-1990s recession, excluding the sharp coronavirus downturn in early 2020:

Consumer confidence at recessionary levels.

Westpac’s consumer sentiment index for July, released today, also plunged for the seventh consecutive month:

The Westpac Melbourne Institute Index of Consumer Sentiment fell 3.0% to 83.8 in July, from 86.4 in June. The survey, covering 1200 respondents, was conducted over the four days from July 4 to July 7.

This marks the seventh consecutive monthly fall. Last month we noted the Index was already around levels that, since the beginning of the survey in 1974, had only been seen during periods of major disruption in the Australian economy including: the COVID pandemic; the Global Financial Crisis; the recession in the early 1990s; the slowdown in the mid–1980s and the recession of the early 1980s…

Component–wise, the biggest falls in July were around the economic outlook.

The plunge in consumer confidence spells bad news for the economy, given household consumption is the economy’s biggest growth driver, accounting for 55% of growth on average.

It also spells bad news for the housing market, since the consumer confidence index has traditionally been a good leading indicator for house prices:

Plunging consumer confidence signals house price falls.

Never before has the Reserve Bank began a tightening cycle with consumer confidence already at recessionary levels. It, therefore, needs to tread vary carefully with further rate hikes.