Consumer confidence has dipped, but is this out of line with reality?

Consumer confidence took a backwards step in March, dropping 0.7% to 99.5 from 100.2 in February, according to the latest Westpac Melbourne Institute Index of Consumer Sentiment.

Westpac senior economist Matthew Hassan said the index has now fallen 10.9% from its peak of 110.3 in November 2013, and is at its lowest level since May 2013.

“The initial declines in December-January looked to be mainly the unwinding of the election-related sentiment boost,” Hassan said.

“More recent falls though have had a very clear theme centring on a sharp loss of confidence in the economic outlook and escalating job-loss fears.”

He said that bad news around the motoring industry, Qantas job cuts, and manufacturing declines are “rattling consumers”.

The Index found that over 66% of consumers thought that news relating to economic conditions was all negative.

However, HSBC chief economist Paul Bloxham told SmartCompany he didn’t think the consumer concern was reflective of the current state of the economy.

He says the economy is showing signs it is on the “road to recovery” with “strong domestic demand”.

He agreed a recent flood of news stories relating to downsizing and company closures could be fuelling concern.

“The figures are reflective of sentiment… consumers are seeing bad news stories online and splashed on the papers about airline and car companies and manufacturing,” he says.

Housing Industry Association of Australia economist Geordan Murray suggests that in the housing sector, the decline in consumer sentiment is “quite a distinct contrast” from current economic realities.

He says there is currently a high level of activity in the housing market.

“Improvements in consumer sentiment can bring the perception that it is a good time to buy a house,” he says. Murray says that a decline in consumer confidence is “definitely not good” for the housing sector.

The Westpac Index showed unemployment expectations rose by 5.5% for the month, to be 13.6% above its November level. The figure of 164.4, was reported by Westpac as an “extreme high” not seen since the 2008-09 global financial crisis.

Murray says while consumers in the Westpac Index showed concern over job security, the Australian Bureau of Statistics results for February showed that unemployment was steady at around 6% and that there was a 47% participation rate.