According to the Westpac-Melbourne Institute, the Index of Consumer Sentiment has seen a massive 5.6 per cent growth in January.
Bill Evans, Westpac chief economist, commented on the dramatic increase.
“This is a very strong result. The Index is seasonally adjusted and therefore takes account of traditional January optimism. Nevertheless it is still above its level of last September prior to the Reserve Bank’s record three consecutive rate increases over the three months from October to December,” he said.
“In other convincing evidence, households appear to have comfortably absorbed the higher interest rates. We note that the confidence of those respondents who currently hold a mortgage has reached its highest level since 1994 when we first collected data using categories defined by home ownership.”
According to the report, the confidence of consumers with a mortgage was up 16.7 per cent in January compared the average rise in January of 8.6 per cent.
“Clearly a major source of relief for households was the absence of a further rate increase. With no meeting of the Board of the Reserve Bank in January the record run of three consecutive monthly increases in interest rates was interrupted,” he said.
Evans highlighted that the major reason for the dramatic rise in confidence was the fall in unemployment.
“However it is likely that the most important flip to confidence in the month was the continuation of positive surprises on the employment situation. Last week it was reported that the national unemployment rate had surprisingly fallen from 5.6% to 5.5% in December,” he said.
“An additional 35,000 jobs had been created in the month and the media is now speculating that the unemployment rate has peaked. Westpac certainly holds that view.”
Family finances compared to a year ago increased by 5.2 per cent, expectations about family finances over the next 12 months rose by 6.8 per cent, opinions on whether to buy a major household item grew 7.7 per cent and expectations for economic conditions over the next five years fell 2.1 per cent.