Consumer sentiment rises almost 45 per cent in 4 months

The Westpac-Melbourne Institute Consumer Sentiment Index has just been released and once again it seems consumers are more confident than ever, registering the largest four month increase in the 35 year history of the Index.

According to the figures released yesterday, the Index surged 5.2 per cent from 113.4 in August to 119.3 in September.

Westpac chief economist, Bill Evans, commented on the news.

“This is a truly extraordinary result. This is the highest level of the index since July 2007. The Index has increased by 34.4 per cent over the last four months – the largest four month increase in the 35 year history of the Index,” he said.

“The standout story is the ‘relief rally’ for consumers – relief that the economy has avoided recession and that expected job losses have not materialised.”

Evans also talked about the effect of this on consumer spending.

“Over the last six months consumer spending has only grown at about 2.5 per cent annual pace and our current outlook is for consumer spending to consolidate over the second half of 2009 before accelerating to three per cent growth through 2010,” he said.

“If these levels of confidence can be sustained then the outlook for consumer spending growth will need to be substantially upgraded.”

The Index measures both ‘news recalled’ and ‘news heard’ among consumers, Evans discussed the results and how the good news is drowning out any negative press.

“The dominant news topic for respondents was domestic economic conditions. This topic was recalled by 69.3 per cent or respondents compared with only 32.6 per cent of respondents who recalled interest rates,” he said.

“Assessments were overwhelmingly positive. Approximately 70 per cent or respondents assessed current economic conditions as favourable compared with approximately 35 per cent in June.”

“The extremely positive response to news items will be driven by the improving outlook for the world economy; the resilience of Australia’s labour market; and the stronger than expected growth in the June quarter. Even a 2.7% rise in petrol prices failed to deter the consumer.”

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