INSIDE INFORMATION: Consumer Sentiment

August 5, 2016




People may wonder what "feelings" have to do with the economy, however the economy is dependent on how confident a population feels. Uncertainty or confidence in an economy can encourage people to save or to spend. This will thus impact how much businesses produce and how much revenue is generated, therefore what wages are paid and can impact the property market.

Consumer sentiment is a statistical economic indicator of consumer confidence on the overall state of the economy. The number (or index) is determined from a sample survey of approximately 1200 Australians. Consumer sentiment takes into consideration all individual's feelings toward their financial health, the health of the economy in the short term and the forecasts for longer-term economic growth. Recently when consumers were asked about the ‘wisest place for saving’ there was a marginally less risky tone as before Feelings appear to more conservative that the previous years. The percentage of consumers nominating to ‘pay down

debt’ with savings has fallen 4.4% down to 20%. In regards to real-estate, last year’s index averaged out at 25.4%, this year this has dropped dramatically with this month’s reading at 15.8% (Likely due to the affordability concerns of the Sydney and Melbourne property markets).

A consumer sentiment index of 100 is considered neutral. The current reading (102.2) is very close to a balance among optimist and pessimist consumers. Every time the index increases, this points to increased confidence of consumers, and therefore increased consumer spending. With consumer confidence high, this can lead to increased spending on real-estate and therefore demand. As we know, increased demand in the right market can lead to increasing prices.

Consumers’ view on housing fluctuated during June. The ‘time to buy a dwelling’ index declined 2.7% however this is after growth of 12.1% in May. The current Westpac consumer sentiment index is sitting at 102.2 which is a positive indicator that the Australian People are feeling confident. 

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