The fall of 1.7 per cent in January takes the index to 6.6 per cent below its recent peak in September of last year.
Westpac chief economist Bill Evans said the most important economic event to affect the index was the release of the December jobs report, which showed a shock loss of 22,600 jobs in the month.
“This concern around jobs is confirmed with our sub-index on unemployment expectations,” he said.
The Westpac-Melbourne Institute Index of Unemployment Expectations increased by 0.7 per cent in January, following a 4.6 per cent jump in December.
Higher readings mean more consumers expect unemployment to rise in the year ahead.
“The index shows no signs that respondents are feeling any relief for job prospects despite the Reserve Bank’s rate cuts and the recent fall in the Australian dollar. In January, the index is 3.5 per cent above its average level in 2013,” said Mr Evans.
The consumer sentiment index also shows some evidence of a cooling in optimism around housing and house prices.
“Exuberance around the housing market has subsided. Our index tracking views on ‘time to buy a dwelling’ was steady in January but is down by 10.5 per cent from its peak in March 2013,” he said.
“We also saw a fall in the House Price Expectations Index of 2.2 per cent, although it remains 29 per cent above its level a year ago.”