By Jacob Greber
Jan. 21 (Bloomberg) -- Australian consumer confidence fell in January for the first time in three months, increasing pressure on the central bank to extend the biggest round of interest-rate cuts since a recession in 1991.
The sentiment index declined 2.2 percent to 89.9 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Jan. 12 and Jan. 18 and released today in Sydney. Since February 2008, the index has held below 100, indicating pessimists outnumber optimists.
Reserve Bank of Australia Governor Glenn Stevens has cut borrowing costs by three percentage points since early September on concern waning consumer spending will tip Australia into a recession. The government also distributed A$8.9 billion ($5.8 billion) at the start of last month to the elderly and families amid waning sales at retailers including David Jones Ltd. and Harvey Norman Holdings Ltd.
“Consumers are entering 2009 with great trepidation,” said Matthew Hassan, a senior economist at Westpac in Sydney. Today’s survey also suggests “the initial boost from aggressive rate cuts and fiscal bonus payments may be starting to wane.”
The Australian dollar fell to 64.80 U.S. cents at 10:45 a.m. in Sydney from 64.86 cents just before today’s report was released. The two-year government bond yield gained 1 basis point, or 0.01 percentage point, to 2.55 percent.
The S&P/ASX 200 index declined 1.4 percent to 3,429.20. Shares in Harvey Norman, the nation’s largest furniture and electronics retailer, dropped 5.7 percent and those in David Jones, the nation’s second-biggest department store operator, slumped 8.7 percent.
Profit Forecast
David Jones cut its earnings forecast today. First-half profit growth may stagnate in the first half of fiscal 2009, the Sydney-based company said, revising a previous prediction annual earnings growth will total as much as 10 percent.
“Consumers have become increasingly pessimistic about the economic outlook for the year ahead,” Hassan said.
Governor Stevens and his board reduced the benchmark lending rate last year to a six-year low of 4.25 percent and said last month that monetary policy was now “expansionary.”
Investors have a 100 percent expectation Stevens will extend the cuts by reducing the overnight cash rate target by three quarters of a percentage point on Feb. 3, according to a Credit Suisse Group index based on swaps trading.
Evidence is mounting that Australia’s economy may be contracting after gross domestic product rose 0.1 percent in the third quarter, the weakest pace in eight years.
Rising Unemployment
The jobless rate climbed in December to 4.5 percent, the highest in almost two years, as mining companies, airlines and automakers fired full-time workers.
BHP Billiton Ltd., the world’s largest mining company, said today it will cut 800 employees and 1,000 contractors from its $2.2 billion Ravensthorpe mine and office workers in Western Australia and its Yabulu plant in Queensland.
Rio Tinto, the world’s third-largest mining company, said last month it will eliminate 14,000 jobs globally, reduce capital spending by more than half and sell “significant assets” as demand for metals wanes.
To ensure Australia doesn’t follow the U.S., U.K., Europe and Japan into a recession, Prime Minister Kevin Rudd has announced almost A$45 billion in aid for families, pensioners, bond markets, home buyers, coupled with extra spending on schools and roads.
“The global recession that took hold in 2008 is deepening and broadening at a rapid pace,” Westpac’s Hassan said. “With the full impact of this weakening yet to be felt in Australia, fear of what lies ahead may continue to stifle the consumer response to aggressive policy stimulus.”
An index measuring consumers’ expectations about economic conditions over the next 12 months slumped 18.4 percent in January from the previous month, today’s report said.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
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