FILE PHOTO: Office workers and shoppers walk through Sydney's central business district in Australia, September 7, 2016. REUTERS/Jason Reed/File Photo

SYDNEY (Reuters) -A measure of Australian consumer sentiment eased back from 3-1/2-year highs in September as concerns about the economic outlook overshadowed a continued improvement in family finances, a survey showed on Tuesday.

A Westpac-Melbourne Institute survey showed its main index of consumer sentiment fell 3.1% to 95.4, having jumped 5.7% in August to its highest since early 2022. The reading under 100 means pessimists still outnumber optimists.

"Outright optimism remains elusive for Australian consumers," said Matthew Hassan, Westpac's head of Australian macro-forecasting. "The cost-of-living crisis may be largely over and policy easing generating some uplift but there is still clearly some unease about the path ahead."

Sentiment has slowly picked up in recent months as the Reserve Bank of Australia cut interest rates three times and inflation cooled steadily.

Crucially, consumer spending also revived in the second quarter to lift the broader economy and further strength might limit the need for deep cuts in rates.

On the bright side, the survey's measure of family finances compared to a year earlier rose 2.6%, adding to a big bounce in August, while the outlook for the next 12 months edged up 0.9%.

However, the economic outlook for the next year fell back a sharp 8.9%, while that for five years dropped 5.9%. In a potential blow to retailers, the index of whether it was a good time to buy a major household item also fell 3.4% to 98.2.

"This measure has been particularly sensitive to the decline in purchasing power since 2022, falling into a deep hole through 2023 and most of 2024," noted Hassan. "Despite a 23% rise since June last year, the sub-index is well below its long-run average read of 124."

(Reporting by Wayne Cole; Editing by Jacqueline Wong)