Fresh Westpac, NAB surveys reveal consumer sentiment still deeply pessimistic while business confidence jumps

Australian consumer sentiment has dipped further into a deep pessimism that has dominated their outlook for the past two years, as the prospect of further interest rate hikes weigh heavy on households.

In its latest consumer sentiment survey on Tuesday, Westpac revealed its index tracking expectations for variable mortgage rates over the next 12 months jumped 12.8 per cent in July, marking the steepest monthly rise since the bank began asking the question at the start of 2022.

“Sentiment remains stuck in the same deeply pessimistic range that has dominated for two years now,” Westpac senior economist Matthew Hassan said.

“The July update shows that fears of persistent inflation and further interest rate rises are again weighing more heavily on the consumer mood, offsetting any boost from the arrival of the stage three tax cuts and other fiscal support measures.”

“While these measures came into effect from July 1, many consumers would not have seen any cash flow impacts so far given that payment cycles . . . are often fortnightly or monthly.”

The survey found just under 60 per cent of consumers expect mortgage rates to rise over the next year. The Reserve Bank next meets on August 5-6,and some economists are already calling the meeting “live” for a possible interest rate hike, to 4.6 per cent.

Minutes from the RBA’s June meeting released last week showed concerns lingering that inflation would not return to its target range of 2 to 3 per cent fast enough.

The latest Westpac survey found the sentiment dip was centred around family finances, with Mr Hassan saying consumer expectations for their finances also deteriorating.

Its family finances sub-index dropped 8.4 per cent in July, giving back almost all of the previous month’s 9.7 per cent lift.

The Westpac survey on Tuesday came the same day National Australia Bank revealed business confidence ticked up last month — driven by a broad-based increase across all industries — to its highest level since early 2023.

But business conditions edged down further, continuing the long-running trend since peaking in late 2022.

“Of note is the sharp decline in the employment index in the month,” NAB head of Australian economics Gareth Spence said.

“While its only one month’s read, the employment index is now below its long-run average and may be signalling that the broader slowing in the economy is flowing through more strongly to labour demand.”

Other activity indicators were mixed in the month. Forward orders remain well into negative territory, driven by the retail and wholesale sectors.

Labour cost growth eased to 1.8 per cent in quarterly equivalent terms (from 2.3 per cent in May), while purchase cost growth fell from 1.7 per cent to 1.3 per cent.

“Encouragingly, the key price and cost growth measures reversed their increase from last month,” Mr Spence said.

“That said, retail price growth was broadly stable and is high despite the weaker activity outlook and confidence in the industry.”

Mr Spence added the survey signalled another soft period for the second quarter.

Commonwealth Bank of Australia head of Australian economics Gareth Aird said the surveys, along with fresh job advertisement data from online employment marketplace Seek, painted the picture of an economy that continued to soften.