Australian consumer gloom has lasted longer than at any time since the early-1990s recession

The case for a long slump rests on how long sentiment has stayed weak. Matthew Hassan, who heads Australian macro-forecasting at Westpac, said no run of severely weak sentiment had lasted this long since the "disastrous" recession of the early 1990s ^[7]. Confidence has fallen about 20% since the Reserve Bank of Australia took rates to their highest since 2011, according to the Westpac-Melbourne Institute index ^[4]. "Australian consumers remain stuck in a cost-of-living nightmare that seems to have no end in sight," Hassan said ^[8].

The late-1990s reading covers less ground than the headline figure suggests. Polling ran from 28 September to 1 October, and the RBA announced its decision on 29 September ^[5][1]. Respondents surveyed after the announcement put the index at 67.2, which is 13.2 points under the 80.4 recorded across the whole survey ^[18]. "The latest RBA move looks to have badly rattled consumers. Responses over the course of the survey week show a very sharp deterioration after the decision was announced," Hassan said ^[2]. The source does not give the size of the post-decision sample. The separate ANZ-Roy Morgan weekly survey came in 0.1 points below it ^[19].

The case against planning for years of weak demand comes from Citi. Analysts Josh Williamson and Faraz Syed said "job vacancies have increased to a two-year high of 122 points, which accords with business sentiment expectations of positive employment growth" ^[13]. The early-1990s period Hassan used as his benchmark was a recession ^[7]. Households are bracing for job losses all the same, with unemployment expectations rising in October ^[12].

For the remaining months of this year, the evidence points one way. AMP economist My Bui said the fall was unsurprising after the September hike and rising fuel prices ^[11]. "On our calculation the weekly petrol bill for a typical Australian household has gone up by $20 versus the beginning of the year," Bui said ^[9]. The spending forecast rests on a correlation. "The worry with declining confidence is that it tends to correlate with household spending on a per capita basis: the downtrend in confidence over the past 12 months suggests consumption per person will likely fall further into contraction this year," Bui said ^[10].

The pressure is uneven across households. Assessments of family finances and buyer sentiment fell furthest ^[14]. Mortgage holders sit 7.8 points below renters ^[20]. Outright owners took the largest fall of the month as the housing downturn ran into a sixth month ^[16]. Views of the economy over the next five years are back at lows last seen in August 2020 ^[17].

The trade-off this quarter is between sizing for a downturn of 1990s length and keeping capacity for the recovery that firm hiring would allow. I would plan the rest of this year on falling per-person spending, because Bui's is the only spending forecast in the record ^[10]. Beyond December, the answer turns on whether vacancies hold near their two-year high ^[13]. A business that cuts now for a long slump has less to sell if they do. One that holds capacity carries its cost through the contraction AMP expects this year ^[10].