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Consumer confidence has picked up from near-record lows as people hope the Reserve Bank may not raise interest rates by as much as feared.
Key points:
- Consumer confidence came off its near-record lows as people betted official interest rates would peak soon
- But confidence remains near recession levels, with pessimists outnumbering optimists
- Business confidence turned negative for the first time this year
Westpac and the Melbourne Institute found consumer confidence increased slightly from November to December on optimism that the downturn in home prices was over.
Consumer sentiment lifted by 3 per cent, from 78 last month to 80.3 this month, with households preoccupied by inflation and the state of the economy.
There was a surprise lift in the outlook for house prices in the survey.
The house price index jumped by more than one-quarter from 91.1 to 117.3, with the rise prominent across major housing markets.
Home prices have fallen for seven months in a row, but the pace of decline slowed in November.
And fewer survey respondents (+50 per cent) expected official interest rates to rise by another 1 percentage point compared to November (+60 per cent) and July (+73 per cent).
The Reserve Bank raised official interest rates eight times from May to December. However it has slowed the pace of rises in recent months.
Westpac chief economist Bill Evan said lower interest rate expectations appeared to be a major reason for the increased confidence.
"In the case of interest rates, there are even some signs that the news is becoming viewed as slightly less negative — consistent with the notion that the bulk of the interest rate tightening cycle is now behind us," Mr Evans said.
"This idea may also be behind a notable recovery in confidence more generally amongst those respondents who hold a mortgage — up 11.3 per cent in the month compared to a 3.8 per cent rise for tenants and a 2.7 per cent fall amongst those who wholly own their property."
Despite that and more confidence about family finances and keeping a job, people still thought it was a bad time to buy a home.
Westpac said the time to buy a dwelling index fell nearly 3 per cent, near its lows, and remained in a deeply pessimistic range, down 43 per cent from its peak in November.
"Affordability is a key driver of this index," Mr Evans said.
"The prospect of high prices is not always positive, particularly when interest rates are expected to move higher as well."
"The combination looks to be keeping homebuyer sentiment firmly in the doldrums."
Mr Evans said confidence was still near recession lows and pessimists still outnumbered optimists.
"Despite this welcome lift, the level of the index remains comparable with the lows seen during the COVID pandemic and the global financial crisis," he said.
"December's 3 per cent rise follows a disastrous 6.9 per cent drop in November that saw the index collapse to just 78 – one of the weakest reads recorded outside of a recession."
Business confidence turns negative
While consumers are slightly more confident because they think the Reserve Bank may not raise interest rates as much as feared and they expect housing prices to start rising again, companies are less optimistic.
National Australia Bank's latest survey found business confidence turned negative last month for the first time this year.
Confidence fell below zero for the first time since December 2021, when it slumped amid the spread of coronavirus and lockdowns.
That was as companies worried about the impact of high inflation and rising interest rates on the global economy and consumers.
NAB chief economist Alan Oster said the gap between business confidence and business conditions was at a record level.
"Firms have become increasingly pessimistic about the future as they look ahead to a slowing global economy and a period of weaker consumption as inflation and higher rates weigh on households," he said.
Business conditions remained strong even though the conditions index fell by 2 points to 20 index points, and conditions held up across the states.
But that meant there were few signs of easing inflation, with wage and supply costs remaining high, and retail prices continuing to rise at a rapid rate.
Manufacturing, wholesale and mining lead the way, but business was softer in construction, finance, business and property.
Mr Oster said conditions continued to hold up in November.
"There was a slight softening across a number of industries, but the level of business conditions really still remains elevated across the board, including in key consumer-facing sectors such as retail and recreation and personal services, and across the states," he said.
However, he warned that firms were concerned that the economy's strength was set to come to an end next year as forward orders pulled back.