Daily Commentary BY THE CURVE TEAM –

RBA’s Biggest Risk is Growing

11th of July, 2019

The RBA has long held the view that the consumers poses the biggest risk to the outlook and the latest data suggests that risk is growing.

With two rate cuts delivered and the prospect of tax cuts at the time the survey was taken, you would think consumers would be a bit more optimistic about the outlook. Not so according to the latest Westpac monthly consumer sentiment survey.

There wasn’t a lot of bright spots in the report with the weakness spreading across almost all sub components which saw the headline index slump from 100.7 deep into pessimistic territory at 95.6. The latest read marks a 2 year low, the last thing the RBA would be wanting to hear at present.

The survey suggests that consumers saw the fact that the RBA needed to cut rates as a sign that the economy is in trouble, rather than more optimistic at the prospect of lower mortgage rates. Consumers expectations for the economy over the next 12 months collapsed, falling 12.3%. Long term prospects for the economy didn’t fare much better, falling 6.7%.

Rates cuts did little to help consumers outlook for their family finances. The family finances index for the next 12 months slumped 8%. The timing of the survey can’t be to blame either despite the survey period straddling the latest rate decision. Responses showed now noticeably differential before and after the RBA’s announcement.

The biggest concern for the RBA from the report will be the movement in unemployment expectations index. The index jumped 5.8%, its second increase in as many months with a higher read indicating greater fear losing their job. A consumer worried about their employment isn’t going to be rushing out to spend their windfall from interest rate and tax cuts.

The downtrend in consumer sentiment is consistent with the weakness that has been prevalent in retail sales over the the past few months. The latest consumer sentiment survey suggests we shouldn’t be expecting a turnaround in consumption any time soon.

David Flanagan

Director - Interest Rate Markets