Posted December 11, 2019 14:28:01

Photo: Mounting pessimism among consumers points to a fairly bleak Christmas for retailers (AAP: Joel Carrett)

Christmas 2019 is not shaping up as very merry for either shoppers or retailers, according to the respected Westpac-Melbourne Institute monthly consumer survey.

The December survey found households were sinking deeper into pessimism.

The result is likely to leave the Reserve Bank feeling somewhat glum too, with its three rate cuts failing to cheer up consumers or inspire them to open their wallets.

"The index has fallen 6.1 per cent since the RBA started cutting the cash rate in June and has been below the 100 level, indicating pessimists outnumber optimists throughout the second half of the year," Westpac chief economist Bill Evans said.

Sentiment declined another 1.9 per cent to 95.1 points in December.

"This poor performance of the index is broadly consistent with the sharp deterioration we saw in consumer spending in the September quarter, as reported in the national accounts and the early evidence of weak retail conditions for the start of the December quarter," Mr Evans said.

Australians like Gretta Dunn are inadvertently stifling economic growth by choosing to save tax and interest rate cuts to pay down their debts, rather than spending more.

Consumer spending increased by just 0.1 per cent over the September quarter, the weakest result since the depths of the global financial crisis, and was a key factor behind another weaker-than-expected, sub-trend GDP number.

Surprisingly, consumers have interpreted the rate cuts as bad economic news, rather than taking the positive spin of lower borrowing costs.

Typically during rate-cutting cycles, consumers' assessments of 'interest rate' news show a favourable/unfavourable mix of about 50/50, with depositors more likely to see things in a negative light, Westpac noted.

Since June, when the first of the year's three cuts was delivered, the favourable/unfavourable balance has been around 30/70.

"This is further evidence that the rate cuts in this cycle have had a much less positive impact on consumers than in past cycles," Mr Evans said.

"There was also high recall of news on 'economic conditions' (18.9 per cent). News in this area was assessed as the most unfavourable in four years."

The survey found households also had a "relatively unfavourable" view on the news flow around 'budget and taxation' and employment.

Households pessimistic about most things

Increasing pessimism was evident across the board, with all components of the index recording declines in December, and households lowering their expectations across both the short and long term.

Views on the economy over 12 months and the next five years were down 14 per cent and 11 per cent respectively from last year. Views on personal finances also fell sharply.

"Readings continue to disappoint given interest rate cuts, the $7.7 billion in personal income tax relief rolled out since July and the turnaround in house prices in most markets," Mr Evans said.

"The 'time to buy a major household item' subindex fell 2.1 per cent in December. At 115.4, the subindex is well below its long-run average of 127 and 3.7 per cent down on last year, suggesting consumers will continue to keep a tight rein on discretionary spending."

The latest economic growth figures show Australia stumbling along, pulled down by a strike in consumer spending and business investment.

The general funk also spread into expectations on unemployment.

"The readings are consistent with a slowdown in jobs growth and steady increases in the unemployment and underemployment rates over the year ahead," Mr Evans noted.

"Housing-related sentiment was mixed in December, views on time to buy weakening sharply but price expectations continuing to rise.

"Responses to additional questions on the 'wisest place for savings' show a shift back towards very high risk aversion. Consumers heavily favour 'safe options', 64 per cent nominating deposits, superannuation or paying down debt as the best place for savings, compared to 62 per cent in September."

The proportion of consumers favouring real estate slipped, while buying shares remained well and truly out of favour despite the ASX gaining almost 20 per cent this year.

Consumer sentiment by category

Source: Westpac-Melbourne Institute

Topics: business-economics-and-finance, economic-trends, retail, money-and-monetary-policy, australia