Australian consumer confidence falls, adding to rate-cut case

Wednesday 21st January 2009

Australian consumer confidence fell this month, amid a rising jobless rate and a deteriorating economic outlook, adding to the case for the central bank to extend its interest rate cuts.

The Westpac-Melbourne Institute index of consumer sentiment fell 2.2%, or 2.1 points, to 89.9 in January, the first decline in three months. The index is down 12.8 percent from January last year.

A reading below 100 means pessimists outnumber optimists and the survey of 1,200 consumers has put gloomy people in the majority since February last year. New evidence of a slump in consumer sentiment came today when retailer David Jones said profit growth may stall in the first half. Shares of David Jones tumbled 8.3% to A$2.42, leading a 1.9% slide in the S&P/ASX 200 Consumer Discretionary Index. Harvey Norman fell 7.8% to A$2.12.

The index on whether it was a good time to buy a house gained 0.4% while the index showing sentiment about the outlook for the economy tumbled 18% in January to the lowest in 16 years. The Reserve Bank of Australia is expected to cut its key interest rate by 75 basis points to 3.5% at its next meeting on February 3 and take the rate as low as 3% by mid-year, economists say.

The jobless rate rose to a two-year high of 4.5% in December.

A separate survey today by Deloitte and the Australian Industry Group of 480 chief executives concluded they were bracing for the hardest year in almost two decades, with manufacturing sales in decline and a drop in employment in the building industry.

The Australian dollar was at 65 US cents recently, from 64.86 cents before the sentiment report was released.

By Jonathan Underhill

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