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It fell by 3.9% in December from 101.3 in November to 97.3 in December.
Westpac's Chief Economist, Bill Evans (pictured), says the result is a jolt to the previous air of stability and confidence.
"Over the last six months the Index has held in narrow range between 99.1 and 102.4. Over that period the Index has generally held above 100 indicating that optimists have slightly outnumbered pessimists (100 being the cut- off point).
"The Index is now at its lowest level since April this year when it printed 95.1. Note that in May, in response to the Reserve Bank's decision to cut the overnight cash rate and a better than feared Federal Budget, the Index surged by 8.5% to 103.2 and has remained in that tight range until today.
"At 97.3 there is now a clear majority of pessimists over optimists with the Index down 3.5% relative to a year ago."
Evans says that it is likely the fall in confidence is related to renewed concerns around the economy, interest rates, and the labour market.
"Note that this fall in Confidence has occurred despite around a 9% lift in the Australian share market," he says.
Every three months the survey includes questions about recall and assessment of news items
The most recalled news items in the latest survey were about Australian economic conditions (26 per cent, up from 21.9 per cent in September). The second most recalled item was budget and taxation (25.2 per cent).
"Since September respondents reported significantly less favourable assessments of Australian economic conditions; employment; and interest rates. Assessments of budget and taxation; international conditions and politics were about the same," says
"Supporting these concerns would have been the announcement that the Australian economy contracted in the September quarter although because the media, quite appropriately in my view, chose not to raise any 'recession' scares the impact on confidence seems to have been relatively modest."
Evans believes that banks raising some interest rates unnerved some respondents.
Despite disappointing labour market data, there was no further increase in the Unemployment Expectations Index.
"The Index fell by 0.8% from 140.2 to 139.1 indicating marginally lower concerns around the unemployment outlook but certainly continuing to depict a relatively soggy labour market," says Evans.
"All components of the Index fell in December. The 'family finances vs a year ago' subindex fell by 2.0% while 'family finances, next 12 months' fell by 1.8%."
The economic outlook deteriorated: the 'economic conditions, next 12 months' sub-index down 5.2% and the 'economic conditions, next 5 years' sub-index down 2.5%.
"Of most concern at this time of year was a disturbing 7.0% fall in assessments of 'time to buy a major household item'. This component is down by 6.3% on the comparable print from a year ago," says Evans.
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