Australian consumers have gone from merely optimistic to deliriously happy, according to Westpac’s consumer sentiment index, which shows consumer confidence has hit its highest point since July 2007.
The index climbed 5.2% in September, which means the index has climbed by a staggering 34.4% over the last four months. It is the biggest four-month rise in the 35-year history of the survey.
“The standout story is the ‘relief rally’ for consumers,” Westpac’s chief economist Bill Evans said this morning. “Relief that the economy has avoided recession and that expected job losses have not materialised.
However, Evans does point to a cap emerging between consumer expectations and actual conditions, with the measures of expectations surging almost 50% in the last four months while measures of actual conditions have only climbed around 15%.
“The mix casts some doubt over how much the surge in sentiment will translate into actual spending,” Evans says.
While consumers are bullish about conditions over economic conditions over the next 12 months and over the next five years, they are more reserved about big household investments, such as buying a house or a “major household item”.
Evans says the case for a rate rise in October has been strengthened by the sentiment data, but says the RBA will be closely watching unemployment and retail sales data to better understand the actual momentum in the economy.
“Our current forecasts point to a slowdown in that momentum that would probably motivate the Bank to defer any decision for another month at least. However, evidence over the next few days that this momentum has not slowed would clear the way for an immediate rate hike.”
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.
