Australian consumers show wariness


Australian consumers are becoming warier about the economic outlook

By Geoff Hiscock
CNN Asia Business Editor

SYDNEY, Australia (CNN) -- Weakness in U.S. stocks, drought conditions in parts of Australia and recent interest rate rises may be starting to hurt Australian consumer confidence, according to a new survey.

The July consumer sentiment index, released Wednesday by Westpac Bank and the Melbourne Institute, shows a fall of 2.7 percent for the month.

That follows a surprise 2.5 percent rise in June. That choppiness shows how volatile confidence levels have been since the September 11 terror attacks in the United States.

Still, the index is 1.1 percent above its July 2001 level.

The sentiment index is a forward-looking indicator. The new figures suggest Australian consumers are getting more wary about the medium-term economic outlook.

The largest fall was in the 12-month outlook, with a 9.2 percent drop since June.

Growing strongly

But other measures show that the Australian economy is still growing strongly, at about 3.75 percent to 4 percent (Full Story).

The National Australia Bank's quarterly business survey released on Tuesday found that business confidence and conditions remain robust, with household spending still leading the way.

NAB chief economist Alan Oster said the result was consistent with growth in nonfarm gross domestic product of around 4.25 percent in the June quarter.

The bank said the household sector continued to lead, with "very strong" business conditions in the retail, wholesale and residential construction sectors.

"The latter sector continues to defy most expectations -- ours included -- of a slowdown," the NAB stated.

Fracturing of trust

But it warned there had been a "fundamental fracturing" of trust in equity markets, notably in the United States. The bank said it is impossible to rule out further near-term falls, particularly if there are more accounting disclosures.

The NAB's comments came less than a day before those by U.S. Federal Reserve chairman Alan Greenspan, who expressed optimism about the health of the U.S. economy (Full Story).

But in his twice-yearly report to a Senate committee, Greenspan acknowledged Tuesday that corporate scandals have indirectly hurt business spending.

The Westpac-Melbourne Institute index released Wednesday said the fall in Australian consumer sentiment in July came in the wake of "considerable weakness" in the U.S. stock market.

That's associated with concerns about corporate governance and prospects for U.S. economic recovery. But Australians are also contending with domestic factors.

The report said weakness in the Australian labor market, the impact of drought in parts of rural Australia and two rate rises in May and June also "may be responsible" for consumer caution.