The Westpac-Melbourne Institute Index of Consumer Sentiment lifted 4.1% December, with Westpac chief economist, Bill Evans commenting that “the surge in the index continues”.

The index is now 48% above the low in April and has reached its highest level since October 2010, marking a 10-year high, Evans said.

“After only eight months the evidence seems clear that sentiment has fully recovered from the Covid-19 recession. The behaviour of the index highlights the difference between this recession, the downturn during the Global Financial Crisis and the recession of the early 1990s.”

According to Evans these differences relate to the nature of the shocks, the resilience of the financial system and the rapid, pro-active responses from authorities which have been critical to containing the economic damage. “In the early 1990s it took nearly three years from the lows before sentiment was into a sustained upswing. That evidence and other aspects of the survey, particularly around jobs, provide some hope that the longer-lasting ‘scarring’ effects we usually get from recessions will be well contained.”

However, he cautioned there are still risks, notably around vaccine developments.

The ‘time to buy a major household item’ sub-index lifted 0.7%, up 5.9% on this time last year. The surge in sales of household goods seen earlier in the pandemic is now slowing but activity remains above pre-pandemic levels. News around jobs was still assessed as downbeat overall but much less downbeat than back in June.

Component indexes show the latest gain in sentiment centred on a further improvement in expectations for the economy, while longer term expectations also posted a solid rise to multi-year highs.

Labour market expectations improved dramatically in December, implying a major easing in job loss concerns. The ‘time to buy a dwelling’ index moved off last month’s seven year high, declining 5.9%, still above its long term average suggesting the turnaround in Australia’s housing markets, which are all now seeing price gains, may be starting to shift views on affordability and prospects for bargain buys.

The large states where prices have been slower to recover were more resilient. Falls in the index in NSW (-4.6%); Victoria (-1.9%) and Queensland (-3.5%) were swamped by big falls in WA (-12.5%); SA (-19.5%) and Tasmania (-16.4%). “The declines in the smaller states were coming off higher starting points in November and the index prints in the smaller states are now comparable to those across the big three,” Evans said.