Worries about the Chinese economy and heavy falls on financial markets have dealt a blow to consumer confidence.
The Westpac/Melbourne Institute index of consumer sentiment fell 5.6 per cent in September to 93.9 points, well below the 100 point level and therefore indicating a growing number of economic pessimists.
Westpac chief economist Bill Evans said the solid fall was not surprising considering the recent spate of disappointing economic news and heavy falls on financial markets.
“We were somewhat puzzled by the surprise increase in the index last month of 7.8 per cent and there was always likely to be some correction this month,” he said.
“The deluge of disturbing news around violent gyrations in both Australian and overseas equity markets’ poor economic data from China’ a disappointing report on Australia’s growth rate and the weakness in the Australian dollar were also likely to have unnerved households.”
The fall in consumer confidence is echoed by Tuesday’s fall in the National Australia Bank business confidence index, which hit a two year low in August, also weighed down by plunging share markets and worries about China’s economic growth.
However, Commonwealth Bank economist Diana Mousina is encouraged that the NAB business confidence index is still in positive territory.
“Despite lower confidence, business conditions are now reported as above average,” she said.
“A lower Australian dollar looks to be helping exporters sales.”
Ms Mousina said weak business and consumer confidence has impacted spending for most of the past two years.
“The current low sentiment readings are not the start to a downtrend in retail sales growth in our view,” she said.
“There are other forces at work which are supporting consumer spending, including a lower savings rate, expanding employment and a depreciation in the currency.”
Ms Mousina said a lower exchange rate redirects prior offshore spending back to Australia, particularly in tourism.
JP Morgan economist Tom Kennedy said growing housing affordability problems are also dragging down confidence.
The index measuring if it is a good time to buy a dwelling fell 0.9 per cent in the month and down 8.6 per cent from a year ago.
“Consumers appear most concerned with the outlook for Sydney’s property sector, with the index falling by almost 50 per cent in the past year to the lowest levels on record,” Mr Kennedy said.
“Westpac notes these concerns are mainly fuelled by affordability concerns, with the rapid price appreciation in Sydney in recent years creating affordability issues for many potential buyers.”