Consumers remain deeply pessimistic despite rate pause

26 July 2023

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Consumer sentiment increased by 2.7% in July 2023 to 81.3, according to the Westpac-Melbourne Institute Index of Consumer Sentiment, but remains in deeply pessimistic territory. The survey was undertaken in the week RBA held interest rates (at 4.1%), and the week after the ABS monthly inflation indicator suggested inflation had started to moderate (6.8% in April 2023 reducing to 5.6% in May 2023). The improved inflation outlook was likely the key driver of this month’s increase in sentiment, with post-RBA announcement survey responses being 11.6% lower than survey responses recorded earlier in the week (77.9 v 88.0). Consumers remain cautious about the outlook for interest rates, viewing the RBA’s July decision as a temporary pause. 41% of consumers expect further interest rate rises in coming months, up from 23% in April 2023. Westpac’s view is that a sustained lift in sentiment is unlikely until inflation is much lower and interest rates are firmly on hold. Following flat sales in April 2023, the most recent ABS Retail Sales and NAB Online Sales both recorded increases in May 2023 (0.7% and 3.7%, respectively). Retail sales benefitted from promotional periods driven by an early start to end of financial year sales events, Mother’s Day and ‘Click Frenzy Mayhem’ sales event. As seen in November with the Black Friday sales, sales events appear to have a more pronounced impact on behaviour in response to cost-of-living pressures. While retailers have benefited from these events in May at a headline level (and could continue to benefit from ongoing end of financial year sales in June) these sales are likely to be at a lower margin and may not translate to improvement at the bottom line. We anticipate there to be an underlying weakness in demand.

Consumer confidence

  • vs prior month - 2.7%

  • vs pcp - (0.0%)

In Retail - Consumer confidence

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Consumer sentiment remains at deeply pessimistic levels, despite recording an increase of 2.7% to 81.3 in July 2023, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. Sentiment has remained in the very weak 78-86 range for over a year now, dampened by cost-of-living pressures. All sentiment sub-indices recorded increases in July 2023, except for the ‘family finances vs a year ago’ sub-index (-4.9%). The decline in this sub-index was driven by lower income consumers and renters. The ‘family finances next 12 months’ and ‘economic outlook next 12 months’ sub-indices recorded significant gains (+6.8% and +5.4%, respectively), however the July improvement only partially reversed the significant 10-12% declines recorded in the prior two months. The Westpac-Melbourne Institute Unemployment Expectations Index remained relatively steady at 131.2, however this index has seen a 32% increase since interest rates started increasing in May 2022, indicating more consumers expect unemployment to grow, pointing to a loss in confidence around jobs. The ‘time to buy a dwelling’ index increased by 6.2% (likely in response to the rate pause), albeit remaining in the extremely weak range of 70-80. With further rate rises expected in the coming months, a sustained lift in sentiment is unlikely for some time.  

Retail sales

  • vs prior month - 0.7%

  • vs pcp - 4.2%

  • 12 months v pcp - 9.9%

Retail sales

Source: Australian Bureau of Statistics

The most recent ABS Retail Sales increased by 0.7% in May 2023 (seasonally adjusted), following the flat result recorded in April 2023 (0.0%). May 2023 retail sales were $1.4 billion higher than May 2022 sales (+4.2% vs May 2022, +14.5% vs May 2021, +23.4% vs May 2020). Retail spending was boosted in May 2023 due to a combination of factors, including an early start to end of financial year sales events, Mother’s Day and the ‘Click Frenzy Mayhem’ sales event. The largest growth was recorded in ‘other retailing’ (+2.2%), driven by strong sales for florists, pharmaceutical and cosmetics retailers, likely linked to Mother’s Day spend. Strong growth was also recorded in the ‘cafes, restaurants, and takeaway food services’ (+1.4%), ‘household goods retailing’ (+0.6%) and ‘food retailing’ (+0.3%) categories. Despite declining in April 2023, ‘cafes, restaurants and takeaway food services’ reached a record level in May 2023 ($5.4 billion), with food retailing more generally recording monthly increases for 16 of the past 18 months. Following an increase in growth in April 2023 driven by a spike in cooler weather, ‘clothing, footwear and personal accessory retailing’ (-0.6%) and ‘department stores’ (-0.5%) declined in May 2023.

Online retail sales

  • vs prior month - 3.7%

  • vs pcp - 4.9%


Source: NAB Online Retail Sales Index

The NAB Online Retail Sales Index recorded strong growth of 3.7% (seasonally adjusted) in May 2023, following revised subdued growth of 0.2% in April 2023 (previously 0%). Growth was driven by a rebound in spending with domestic retailers with increases recorded in all categories, except media. A particularly strong rebound was recorded in the largest category, ‘homewares and appliances’ (5.4%), while ‘fashion’ (6.8%), ‘personal and recreational goods’ (4.6%) and ‘department stores’ (4.5%) also recorded solid growth. Year-on-year growth was recorded for the first time since May 2022 (+4.9%), with the last 12 months of retracing gains made during the height of the pandemic period. Growth was recorded across all states and territories, with South Australia (+9.7%) leading, followed by Northern Territory (+5.5%), Queensland (+4.3%), Tasmania (+3.8%), ACT (+3.7%), Western Australia (+3.2%), Victoria (+3.1%) and New South Wales (+2.9%). All states also recorded growth in year-on-year terms, as the base effects of the pandemic dissipate. Online retail sales in the 12 months to May 2023 totalled $53.3 billion and are estimated to represent approximately 12.7% of the total retail sales (-5.1% v the 12 months to April 2022).