Australia: Nervous consumers lack confidence

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Nervous consumers lack confidence

Australian consumers have lost confidence in the economy, sending a leading private indicator of consumer sentiment down 15.4 per cent in March.

The Westpac-Melbourne Institute Index of Consumer Sentiment fell to 86.4 points, from 102.1 in February.

The index was released just as the Australian dollar plumbed another low in local trading, sinking to $US0.5019. It is currently at about $0.5030.

"This represents an over-reaction to the extensive discussion of recession which dominated the media last week," said Westpac's general manager of economics, Bill Evans.

"We expect that confidence is likely to recover somewhat in the next survey." However Mr Evans conceded that consumers are feeling "decidedly nervous" and are likely to wind back their spending to dangerous levels in the next few months.

"With world growth looking weak, Australia will be relying on a boost to domestic demand to avoid a prolonged recession," he said.

"That points to the need for aggressive cuts in interest rates which are required immediately.

"We expect the Reserve Bank to cut rates of 0.5 per cent in early April and at least another 0.5 per cent in May/June."

The drop in March is the biggest ever monthly fall in the 25-year history of the survey.

The only comparable collapses in consumer sentiment occured in April 1990, during the early 1990s recession, and in July 1982, during the early 1980s recession, and in November 1987 following the October sharemarket crash, Westpac said.

"However, to put the fall into some perspective, the Index is still 31 per cent above the low reached in the early 1990s recession," Mr Evans said.

A component of the index, which asks the 1,200 respondents to recall news they had recently heard indicated that recent discussion of the softening economy was foremost in consumers' mind.

Forty per cent of consumers recalled the economy 23 per cent mentioned the falling Australian dollar, in a further dampener on spending intentions.

All components of the index were down.

The biggest fall was a 33.6 per cent fall in perceptions of economic conditions over the next 12 months.

"That was easily the biggest ever recorded fall in that series," Mr Evans said.

"Encouragingly, confidence in the long term remains and there was only a 3.1 per cent fall in economic perceptions over the next five years."

One positive note from the survey came in the form of a 15.5 per cent jump in the number of respondents who had decided that the time was right to buy a home.

That was complemented by a 27 per cent jump in the proportion of respondents who saw real estate as the wisest form of savings.

"Offsetting that news on the housing front was a 10 per cent fall in those respondents seeing it as a good time to purchase a motor vehicle and a 17 per cent fall in those who saw now as a good time to purchase a major household item," Mr Evans said.

"The overall weakness in the index and those details point to a likely further downturn in consumer spending over the next few months."

http://www.smh.com.au/news/0103/14/update/news02.html

-- Martin Thompson (mthom1927@aol.com), March 13, 2001


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