Consumer confidence high post-election

Consumer confidence high post-election

Consumer confidence has soared to three-year highs, propelled by record low interest rates and the election of a Coalition government.

The Westpac Melbourne Institute Index of Consumer Sentiment, released today, increased by 4.7 per cent in September to 110.6 - its highest point since December 2010.

Westpac chief economist Bill Evans said although the survey was mostly conducted before Saturday’s election, between September 2 and 8, it was clear the election outcome played a big part in the confidence boost. Record-low interest rates also contributed, he said.

The upbeat report will be a relief to the Reserve Bank which has been counting on a revival in consumer and business spending to help plug the gap left by a cooling mining boom.
The outcome echoes a survey of 600 businesses out yesterday that showed companies' confidence soared last month, with a major part of the rise attributed to an expected change in government.

‘‘This is a very strong result,’’ Mr Evans said. ‘‘It was really only the last day of the survey that covered the actual election result although media coverage pointed strongly to a coalition victory throughout the survey period.

‘‘Responses collected on the last day of the survey showed a further marked lift in sentiment although the sample size is too small for this to be a statistically valid result.

‘‘I think it is reasonable to conclude that the election result played an important if not leading role in this strong boost to consumer sentiment.

‘‘The result is comparable with the boost to the index in March 1996 when the Coalition was returned after 13 years in opposition.’’
Mr Evans said components of the index showed the confidence boost was driven by optimism about the economy, rather than how households feel about their own finances.

He said aspects of the survey would give the Reserve Bank encouragement that rate cuts, complemented by the boost from the election, ‘‘make policy settings about right’’.

But soft labour market, business investment and consumer spending conditions meant the RBA would need more time to assess the underlying strength of the economy, he said.

The index reading was up 12.7 per cent on September last year at 110.6, meaning optimists now comfortably outnumber pessimists.

The effect on sentiment was clear as the confidence index for Coalition supporters surged over 19 per cent in September, outweighing a 10 per cent drop among Labor supporters.

The sub-index tracking assessments of whether now is a good time to buy a dwelling jumped 6.5 per cent to the highest level since August 2009, the report showed.

Home prices rose 5.3 per cent across Australia’s eight major cities in the year to August 31, according to an RP Data-Rismark home value index. Sydney home prices recorded the biggest quarterly rise since April 2009, it showed.

Traders are pricing in a 66 per cent chance the central bank will keep rates unchanged this year, according to interest-rate swaps data. The RBA has eased borrowing costs by 2.25 percentage points since November 2011.

For the original article from Sydney Morning Herald click here.