Westpac's Consumer Sentiment Index declined in September to what senior economist Matthew Hassan calls 'deeply pessimistic levels'.
The Card Tracker Index rose slightly in the September quarter, but continues to be at low levels.
Some of the lift in card spending is down to the rise in fuel prices, as well as temporary seasonal lifts like the 'Matilda effect'.
With population growth surging, per capita card spending is declining when adjusted for inflation.
Australia is also in a per-capita recession, according to ABS figures released two weeks ago.
Mr Hassan says the slowdown in spending is consistent with a 'consumer recession'.
"The overriding message is still of intense pressures on family finances and widespread belt tightening," he said.
"The end of the RBA's rate hikes may have prevented further weakness, but it will likely take much more - a convincing end to the cost of living crisis - to spark a sustained consumer recovery."
Households have tightened the purse strings, but there are still other factors keeping growth in the Australian economy positive.
In August, the unemployment rate remained at 3.7%, with an extra 65,000 Australians now in work - however these were mostly part-time roles.
Aussie exports are also up, as well as investment, driving a 0.4% increase in GDP in the three months to June.
To meet the definition of a technical recession, real GDP growth needs to be negative for two consecutive quarters.
Inflation more concerning than high interest rates
Mr Hassan believes pervasively low consumer sentiment, despite no cash rate increases since June, shows cost of living pressures are the main issue facing Australian households.
"Sentiment overall has barely risen since the RBA rate hikes stopped, up just 0.7% since June," he said.
Among mortgage holders, consumer confidence rose 7.8%, but this was more than offset by a 6.1% fall among renters and 5.8% for those who own their home outright.
The latest CPI indicator showed inflation rose 4.9% in the 12 months to July, down from 5.4% in June, but Mr Hassan says there have been price increases since in some of Australia's more volatile sectors.
"Rapid rises in rents, electricity, and fuel costs - the latter up over 15% since the middle of the year - have continued to weigh heavy, with sentiment outside the mortgage belt down 2.8% since June," he said.
Aussies pessimistic about themselves, but more faith in the economy
If the Consumer Sentiment Index is at 100, it suggests Australian consumers are neither optimistic nor pessimistic about their economic prospects.
In September, the index declined 1.5%, from 81.0 in August to 79.7 for September.
Across roughly 600 surveys since the mid 1970s, the index has been below 80 fewer than 30 times, so this latest result is in the bottom 5% historically.
Among the results though, there were signs consumer sentiment about the broader economic outlook could be improving.
There was a 0.4% increase in survey respondents confidence about economic conditions over the next 12 months, a 2.8% lift in unemployment expectations and a 2.2% increase in house price expectations.
On the other hand, there was a 3.2% decline in confidence about economic conditions over the next five years.
When consumer spending might turn the corner
While this period doesn't technically qualify as a recession, Mr Hassan says it has clearly still been tough for Australian consumers.
"The 2022-2024 period...already stands out as one of the most difficult periods Australian consumers have had to deal with, and one of the weakest for spending, that we have seen in decades," he said.
Westpac forecasts suggests consumer spending will improve in the aggregate during the second half of the year, but is still likely to decline on a per capita basis.
Most economists also feel a prolonged period with the cash rate at 4.10% will inevitably see unemployment increase, which will further impact consumer spending.
Mr Hassan says things could start to turn around in mid 2024.
"The circuit breaker for consumers is likely to come later [in 2024] when inflation is firmly back under control and policy stimulus is expected to come through, both in the form of interest rate cuts from August next year and the 'Stage 3' tax cuts scheduled to come into effect from July 2024," he said.
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