Has confidence finally turned?

It would be easy to get caught up in all the bad news around this week. Company collapses in Australia are among the highest in the world, housing starts are well and truly in the toilet and the sharemarket continues to bounce around as investors struggle to decide just how ugly the situation in Europe is.

But forget that stuff for a minute and take a look at some rays of hope from the latest readings of business and consumer confidence which might provide some early signs that confidence may have bottomed.

First we saw the index of consumer sentiment, which rose 8.1% in September in what the bank’s chief economist Bill Evans described as a “surprisingly strong” result.

Now, Evans was quick to point out that consumer sentiment is still very weak and households will remain very concerned about their finances over the next 12 months.

But a stable interest rates outlook and better-than-expected GDP figures earlier this month appear to have reminded consumers that things are not really as bad as we may have thought.

If we look deeper into the index, we can see a fairly broad rise in optimism: the sub-index tracking families’ assessment of their finances compared to a year ago surged by 11.2%; the sub-index on expected finances over the next 12 months was up by 9.5%; the sub-index tracking the outlook for economic conditions over the next 12 months surged by 16.6%; and the sub-index measuring consumers’ five year economic outlook was up by 4.5%.

In promising signs for retailers, sentiment towards buying a major household item increased by 3.2%.

Data today shows households’ concerns about unemployment rose 8.5% during the month (managers and professionals are the most worried).

On top of the improved consumer confidence figures, the latest reading from Roy Morgan’s business confidence index was also encouraging.

The survey is particularly interesting because it represents the first full month’s survey since the sharemarket started sliding in early August. Confidence steadied at 101.8 points, up marginally on the 99.8 points recorded in July. The polling company said the improvement was “mainly as a result of the improved outlook for the economy over the next 12 months”.

As with consumer confidence, it must be noted that business confidence is still well down on last year and frankly not far off GFC levels.

But any evidence that consumers and businesses have realised that the economy is not deteriorating has to be a good thing.

If the interest rates outlook can remain stable and the situation in Europe can settle down a bit, then the mood of consumers should start to improve.

It’s far from guaranteed of course, but smart companies need to be alert to an improvement in the mood of consumers – and keep those growth plans on the front burner.