Tune into how consumers feel to navigate the uncertainty

The data tells the story of the pressure on consumers:

Ongoing cost of living burden: The rising cost of living remains the dominant concern. Despite inflation tempering from a high of 7.8% in December 2022 to 3.6% in April 2024.1, eight in 10 consumers are worried about the rising cost of living and one in two are stressed about the affordability of day-to-day essentials. Six in ten (61%) say they are cutting back on non-essentials. Economic data shows that groceries are absorbing a higher relative proportion of household spend than at any time in the past 14 years2, with the exception of when Australia was at peak lockdown and people couldn’t easily spend out of home.

Continued mortgage pressure: One in three households with a mortgage are anxious about the potential for further increases to home loan interest rates as 2024 unfolds. Two in five mortgage holders (43%) are feeling the stress of affording essentials, making discretionary purchases and repaying their home loans. Close to three in 10 (29%) say they are worried that they may be forced to sell their home - a confronting statistic. High interest rates continue to haunt mortgage holders; they also radiate out to the third of Australians who are tenants in a tight rental market. Rents are at a record national high of $627 per week –8.5% higher than this time last year3.

Subdued financial outlook: More than one in two consumers (55%) are worried about their personal finances. Very few (only 6%) can be described as optimistic about their financial outlook. Beyond the direct financial pressure, escalating geopolitical issues and conflicts abroad, combined with homegrown social tensions, are making people feel less secure and more guarded. The instability also sees people pull more to the extremes on the political spectrum.

The sustained malaise reflected in the EY Future Consumer Index is reinforced by Westpac’s long term consumer sentiment data. In April, Westpac analysts noted that “outside of the deep recession of the early 1990s, this is easily the second most protracted period of deep consumer pessimism since we began surveying in the mid-1970s”4. Consumer confidence is locked in at well below pandemic levels.

With the lion’s share of Australians feeling somewhere between flat and anxious, the times are challenging for consumer-facing organisations and precarious for governments. The 2024 Federal Budget focused on measures to alleviate the pressure on households, but it came with words of caution. Treasurer Jim Chalmers noted the “considerable uncertainty” that makes Australia’s future hard to forecast and called the global outlook “fraught and fragile”. 

Is it all that bad? The vibe versus the headline data

Over years of research, we have found Australian consumers typically adopt a more pessimistic outlook in times of economic tumult and uncertainty than their international peers – even when the performance of the economy should suggest a slightly less despondent outlook. At this point in time, the lead economic indicators are not significantly deteriorating, but we have higher proportions of Australians feeling worse and many feeling trapped in a holding pattern.

In the economy, we are at a point now where domestic unemployment remains low, the labour market is strong, immigration is at record highs and inflation is slowly moving back within the Reserve Bank’s target range. The International Monetary Fund’s global economic outlook for Australia is for modest growth.

A purely rational view would suggest the pessimism is overstated. However, consumers are driven by emotion and the current feelings are cumulative, viral and that’s where the contradiction lies.

The vibecession has been prevalent in the United States, where the economy is showing comparative strength, but consumer sentiment remains stubbornly suppressed. 

There’s no simple explanation, but the vibe is all about how people are feeling and right now there is a collective gloom that is hard to shift. Certainly, the financial pressure on individuals and households is the catalyst, but there’s more to it. The disruption and volatility stretching back to the start of the pandemic are drivers. The emotional legacy of the lockdown years and beyond still has a long way to play out.

Then there’s the amount of noise generated by politicians, policymakers, and media commentators around the cost of living, interest rates, company collapses, amongst many other high stress areas that dominate the daily news feeds. This rings loudly in the ears of consumers. Those who can least afford to absorb the higher costs and are the most dismayed, frustrated and feel the greatest sense of injustice.

EY Future Consumer Index 14th wave