Oz Consumer Confidence Near two-Year High

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This story features JB HI-FI LIMITED.
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By Chris Shaw

As the very good JB Hi-FI ((JBH)) profit result showed, Australian consumers are still spending despite the economic downturn and given consumer spending is closely related to consumer confidence data it is little surprise sentiment is moving towards two-year highs according to the latest Westpac-Melbourne Institute survey.

For August the Consumer Sentiment Index rose 3.7% to a reading of 113.4, extending the rally of the previous two months. Westpac senior economist Matthew Hassan notes the Index is now up 27.8% since May, which is the biggest three month gain in the history of the Index that dates back to 1975.

The outcome is a clear message in Hassan’s view that consumers see the worst of the downturn as behind them, the latest gains likely helped in his view by Australian Bureau of Statistics figures showing rising housing prices in the June quarter and labour market data for July, which he notes were surprisingly strong given employment rose against expectations.

These latest figures combined go a long way to alleviating the major concerns of Australian households in Hassan’s view, these being household wealth levels (with the family home the largest single asset in most cases) and job security. Rising share prices have also helped with respect to the household view equation given the ASX200 Index has gained more than 30% since its March lows, while further signs of stabilising in the global economy are another positive of note according to Hassan.

All components of the index gained in August, with the strongest gain coming in the expected economic conditions over the next year category, which jumped 11.2% following on from a near 20% increase in June and has now risen more than 100% since March.

While expectations of conditions over the next five years rose only slightly, this measure remains at an all-time high of 123.1, while consumers’ assessment of their own financial situation now compared to a year ago also improved. This assessment remains in negative territory through.

The measure most relevant to the retail sector is whether or not now is considered a good time to buy major household items and this continues to offer encouragement, Hassan noting it is back to its highest levels since the middle of 2007 having recorded a 2.2% gain for the month. Measures of whether now is considered a good time to buy a house or a car also recorded modest gains.

With the Reserve Bank of Australia meeting on September 1st, Hassan expects no change to official interest rates, though with a shift from an easing bias already announced he expects the process of normalising interest rates will begin early in 2010, with an increase in the cash rate of 0.25% in February likely in his view.

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