The day the Reserve Bank pushed consumer confidence into the abyss

If the RBA’s objective was to scare the community away from the shops it looks to have hit its mark.

People understood that inflation was expected to peak in December but believed the RBA would ease its foot off the rate pedal after February and provide some timeline for interest rate relief. It did the opposite.

Digging into the Westpac index showed a particularly big deterioration in views on family finances, the near-term outlook for the economy and whether now is a good time to buy a major household item.

Consumers expect 2023 to be a very challenging year for the economy, according to the Westpac survey. The “economic outlook, next 12 months” sub-index fell 7.7 per cent to 75.1. But expectations showed a particularly sharp deterioration following the RBA decision, falling 12 per cent between pre- and post-RBA samples.

Most disturbing is the size of the hit to current finances. The Westpac sub-index measuring “family finances compared with a year ago” dropped 8 per cent in February, to just 62.1 – the weakest reading since the depths of the early-1990s recession.

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Consumer spending held up very strongly during the year until December, when signs emerged from the Australian Bureau of Statistics that retail sales had softened – falling by 3.9 per cent after 11 months of consecutive gains.

The figures will capture the mood of about 800,000 households with mortgages that will roll off this year to vastly increased variable interest rates.

It is this group that is particularly concerned about the combination of much higher interest rates and the historically high cost of living.

The confidence crash is an ominous sign for companies that sell products and services in the discretionary space.

After months of warnings from investment analysts that the spending boom was on its last legs, retailers are issuing a cautionary note around revenue for the second half of the 2023 financial year.

Any weakness in the performance numbers was punished.

On Tuesday, online furniture retailer Temple & Webster said sales in the first five weeks of the calendar year were down 7 per cent. Its share price sank more than 22 per cent in response.

Meanwhile, the market darling of the retail sector JB Hi-Fi admitted on Monday that the first signs of a pullback in consumer spending had emerged with sales slowing since the start of the calendar year and the economy entered an “uncertain” period.

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“Notwithstanding its [JB Hi-Fi’s] best-in-class offering, we remain cautious on the consumer over 2023 as cost of living and macroeconomic pressures continue,” Macquarie analysts said in a note which retained the “underperform” rating on the stock.

Breville, which posted relatively weak revenue growth for the first half year, had its share price punished by more than 5 per cent after it warned earnings growth could slow.

Westpac said its consumer sentiment survey continued to give a very clear warning that the pressures bearing down on the consumer are becoming intense. While spending has held up relatively well to date, we expect an abrupt slowdown to show through in coming months.