Thursday, June 12, 2008
The latest Westpac-Melbourne Institute survey shows confidence sliding a further 5.6 per cent in June to its lowest point since Australia was emerging from the 1990-91 recession.
Westpac's chief economist Bill Evans said that the drop was unusual because it came despite the Reserve Bank having left interest rates steady in recent months.
“Over the last five years large falls in the index have almost always been associated with a negative response to the announcement of higher mortgage rates,” he said.
“There was no such announcement affecting this result.”
The bank's confidence index is now 30 per cent below its level of a year ago.
Confidence about the year ahead is down 44 per cent.
Confidence about whether now is the right time to buy a major household item is down 37 per cent...
Views about whether now is the right to buy a house are down 20 per cent; views about whether now is the right to buy a car are down 31 per cent.
Mr Evans identified petrol prices as “the main culprit”. He said that one month ago petrol was selling for $1.45 a litre. It is now more than $1.56 and heading higher.
“Unlike the last sustained hike in oil prices in 2005 consumers are also being stretched by higher mortgage rates and higher food prices,” he said.
The most stressed households were those earning $40,000 to $60,000 per year. Mortgagees were more stressed than either renters or people who owned their houses outright.
Other figures released yesterday show that lending for housing slid a further 5 per cent in April to be down 9 per cent on a year ago.
The latest Access Economics forecasts released this morning have retail spending slow to flat for the next year until the Reserve Bank releases the pressure on interest rates mid next year.
“It will be particularly weak in the ACT as it is more affected by higher mortgage rates than the rest of Australia and its employment growth has stalled,” Access director David Rumbens said.
“The only saving grace is that the tax cuts due in July which will begin to put money into consumers pockets”.
But Mr Rumbens said that unlike high fuel prices, high food prices and high mortgage rates, the impact of the tax cuts on pay packets would not be noticed straight away.
“It should help, but only gradually,” he said.
TD Securities said household spending growth was at risk of collapse.
“The only debate now is over how much weaker expenditure is likely to be, but it is possible that retail sales could remain flat or even negative in real terms,” senior strategist Joshua Williamson said.
He believed that the Reserve Bank would become so concerned about what was happening that it would cut interest rates later this year.
“Even if our timing for an rate cut is premature, a rate hike this year is now highly unlikely,” Mr Williamson said.
Other research released by Westpac yesterday found that the steady increase in fuel prices had wound back the consumption of fuel.
Consumer spending on fuel had remained relatively steady as a proportion of total outlays at just under three per cent, but the fewer litres were being bought.
The average distance traveled per vehicle had fallen from a peak of around 14,600 kilometres per year in 2001, to around 13,800 kilometres per year in 2006 and had most probably fallen further since.