Australian Consumer Sentiment Falls as More Jobs Lost

By Jacob Greber

Feb. 11 (Bloomberg) -- Australian consumer confidence slumped in February as rising unemployment and falling property prices threaten to push the economy into its first recession in almost two decades.

The sentiment index declined 4.6 percent to 85.8 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Feb. 2 and Feb. 8 and released today in Sydney. The index has been below 100 since February 2008, indicating pessimists outnumber optimists.

Today’s survey suggests the central bank’s decision to slash borrowing costs last week to a 45-year low and government plans to spend A$42 billion ($28 billion) on infrastructure and cash handouts to households may not be enough to offset the economic impact of slumping demand for Australia’s commodity exports.

Consumers are “unusually fearful of the future,” said Bill Evans, chief economist at Westpac in Sydney. “This represents a serious challenge for policy” at the central bank.

“Logically it points to consumers saving any excess income” rather than boosting spending, Evans added.

The Australian dollar traded at 65.74 U.S. cents at 10:36 a.m. in Sydney from 65.68 cents before the report was released. The two-year government bond yield was unchanged at 2.7 percent.

Economic Outlook

An index measuring consumers’ expectations about economic conditions over the next 12 months dropped 7.6 percent in February from January, the report showed.

Despite “record largesse” from the government and the central bank, consumer confidence has fallen 7 percent below the level the index was at just before central bank Governor Glenn Stevens began cutting borrowing costs in early September, Westpac said in today’s report.

Stevens and his board have reduced the benchmark interest rate since early September by four percentage points to 3.25 percent.

Slumping consumer confidence echoes a plunge in business sentiment last month to a record low, according to a National Australia Bank Ltd. report published yesterday.

The business confidence index dropped 12 points to minus 32, the lowest level since the series began in 1989, National Australia said.

Rising Unemployment

Commonwealth Bank of Australia, the nation’s second-largest bank, said today that bad debts rose almost five-fold to A$1.6 billion as loans to failed companies including ABC Learning Centres Ltd. soured.

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.

The unemployment rate climbed in December to 4.5 percent, the highest level in almost two years, as mining companies, airlines and automakers fired full-time workers.

The jobless rate probably rose last month to 4.7 percent, according to the median estimate of 14 economists surveyed by Bloomberg. Employment figures will be released tomorrow.

Lending by banks to consumers buying houses rose 7.6 percent last year, the weakest growth since 1983, home-building approvals fell in December for a sixth month and property prices tumbled 3.3 percent in 2008, recent reports showed.

BHP Billiton Ltd., the world’s largest mining company, has said it will cut 800 employees and 1,000 contractors from its $2.2 billion Ravensthorpe mine in Western Australia and its Yabulu plant in Queensland.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net