The economy might be in recession and the unemployment queues may be growing, but Australian consumers are proving to be extremely resilient in the face of bad news.
The Westpac-Melbourne Institute Index of Consumer Sentiment increased by 8.3% in April, rising from 85.6 in March to 92.7.
Westpac chief economist Bill Evans says the result is surprising, particularly after March’s resilient result when consumer confidence fell by a less-than-expected 0.2%.
“This month there has been more positive economic information,” Evans says
“Concerns about the global economy have eased as sharemarkets boomed. Both the US and Australian markets have risen by around 20%. The Australian dollar, which is seen as a proxy for global risk, was up by 11.6%.
“We have found that generally Australians respond positively to a rising Australian dollar. Finally, despite recent increases in the oil price, petrol prices were down slightly on the month by 1.3%.”
Consumers are also looking forward to cash handouts as part of the Government’s $42 billion stimulus plan. Westpac’s survey found consumers’ assessments of their financial position relative to a year ago increased by 10.8% while expectations for the next year were up by 11.8%.
But Evans has warned about getting too carried away with two months of good results, pointing out that consumer confidence appeared to bottom early in the last recession of the early 1990s, before plunging again.
Back then, rising unemployment caused confidence to tumble, and Evans expects the same thing to happen this time around.
“Given the disturbing signals from all the leading employment indicators, which are pointing to a rapid increase in the unemployment rate over the next 18 months, we are likely to see the index reaching new lows over that period.”
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
