By Grant Shepherd
Spurred on by the news that Australia has narrowly avoided a recession, consumer confidence in the economy has shown remarkable strength in the latest Westpac-Melbourne Institute Index of Consumer Sentiment, rising a staggering 12.7 per cent in June.
The index rose from 88.8 in May to 100.1 in June. Bill Evans, Westpac chief economist, commented that it was the second largest increase in the survey’s history and also the biggest recorded growth in 22 years.
Evans concluded that the main reason for this result was due to the positive news that Australia has avoided a recession.
“It is very likely that the dominant factor behind this extraordinary rise was the release of the March quarter national accounts last Wednesday which registered a small but nevertheless positive growth rate for the Australian economy in the December quarter,” he said.
“The index is now at its highest level since January 2008 when the unemployment rate was 4.3 per cent and the economy was growing at a four per cent pace.”
According to Evans the amount of optimists now slightly outweigh pessimists, and Evans attributes this to a lagging response to economic stimulus packages.
“Since the authorities started providing the economy with stimulus the index had only increased by around three per cent despite the record monetary and fiscal stimulus,” he said.
“This surge in the index can be seen as a delayed response to the significant stimulus over the last nine months.”
The results also highlighted that consumers expectations over the next 12 months is up 37 per cent, economic conditions over the next five years is up 20.2 per cent, expectations of family finances over the next 12 months up 11.1 per cent and family finances versus a year ago was up 8.1 per cent.
The only component to fall was whether or not it is time to buy a major household item, which fell 1.6 per cent.
Overall Evans highlighted that the ‘Current Conditions’ index was up by 2.2 per cent compared to the 20.7 per cent increase in ‘Expectations’ index.
“We are of the view that the ‘Current Conditions’ index is a more reliable indicator of the likely outlook for consumer spending,” he said.