Consumer confidence has been shattered: Economy roundup

A dramatic slump in new housing loans and consumer sentiment revealed in data released today provides further evidence that Australians are bunkering down for economic tough times.

A dramatic slump in new housing loans and consumer sentiment revealed in data released today provides further evidence that Australians are bunkering down for economic tough times.

The number of new housing loan applications approved in May fell by 7.9% seasonally adjusted, shocking markets that had predicted falls of between 2% and 4%.

The total value of new home loans fell 6.1%, or more than $600 million, for the month. The value of investment housing loans decreased 6.8% and owner occupier loans by 5.7%.

Over the past four months new lending to owner-occupiers has fallen by 23%, the fastest drop since late 2003.

“The ongoing slump in housing finance commitments reflects the growing financial pressures on the household sector,“ ANZ head of property and financial systems analysis Paul Braddick says. “Sentiment and cash flow have been hit hard by rising interest rates, rents and food and fuel prices.”

A similarly grim economic picture is also painted by the 16-year low in consumer sentiment recorded by the July Westpac-Melbourne Institute index of consumer sentiment.

The index fell 6.7% to 79 points in July, a level of consumer pessimism not seen since January 1992.

Westpac chief economist Bill Evans says high petrol and fuel prices and the poor sharemarket performance have seriously undermined confidence.

“These consistently weak reads are pointing to a period of very weak consumer spending and associated economic activity,” Evans says.

There is a silver lining in today’s figures, however, with the weak results likely to increase the Reserve Bank of Australia’s confidence that further rate rises are not required to bring inflation under control.

On the markets today, at 12.15pm the S&P/ASX200 is up 1.6% on yesterday’s close, nudging its nose back above the 5000 mark to 5013.4. The Australian dollar is trading at US95.10c.