The latest Westpac Melbourne Institute measure of consumer sentiment released yesterday shows that confidence slid to a 16-year low in July, with the index diving below 80 points for the first time since the wake of the early 1990’s recession.
An index number below 100 indicates that pessimists outnumber optimists.
Disturbingly, only 35 per cent of the consumers surveyed agreed with the proposition that “now was a good time to buy a major household item”.
Almost half – 47 per cent – agreed that now was a bad time to make a major household purchase.
Home finance figures also released yesterday point to an exodus from the home loan market...
In the four months to May the number of new home loans slumped 25 per cent – the biggest slide in the three decades since records have been kept.Canberra home borrowings began sliding earlier and are down 30 per cent in the last year.
In May 2007 a total of 1,046 new loans were issued to buy houses. In May this year there were just 727.
The chief economist at CommSec Craig James said homebuyers were “effectively on strike” until they are convinced that mortgage rates would not rise again.
The decision by the St George Bank to independently lift its standard variable mortgage rate from 9.65 per cent to 9.67 per cent on Monday would not have helped.
“It raises an interesting point about where all our extra people are choosing to live,” Mr James said.
“Australia is experiencing the biggest migration boom on record and the rental market is as tight as a drum,
but at the same time home buyers are in short supply. There must be a lot more people in shared accommodation or at least staying home with their parents longer.”
Westpac’s Chief Economist Bill Evans said that consumer confidence had plunged to its lowest point since January 1992 “when consumers were still recovering from the brutal recession of 1990-1991”.
“The most probable explanation is petrol and oil prices,” he said.
“Petrol prices have climbed 3.4 per cent in the price month and 15.3 per cent in the past three months.”
CommSec’s Craig James said the link between petrol prices and consumer confidence was “unmistakeable”.
“Petrol prices surge, consumers get gloomy. It is the biggest lift in the cost of petrol ever experienced, so the gloom is certainly understandable.”
“Eventually motorists will get used to the higher price of petrol, but only once it stops rising.”
Share market wealthy had slid 9 per cent in the last month and looked set to slide further.
“The share market has continued to slide, petrol is near record highs, rents are soaring and there is no interest rate relief in sight,” Mr James said.
“There are actually a few positives for consumers, such as tax cuts and super-low unemployment, but they are clearly being swept the carpet.”
“The way things are going we are at clear risk of talking ourselves into recession.”
“The Reserve Bank would be best advised to give consumers some breathing space and hold off on rate hikes for a few months,” he said.
Employment figures due out today will be watched for further signs of a downturn.
All three measures of job advertisements are down and the Department of Employment’s leading indicator of employment index has fallen for the sixth consecutive month.
In May the number of Australians in jobs fell for the first time in 19 months.
