Australia | Jan 20 2010
By Rudi Filapek-Vandyck
The Westpac-Melbourne Institute Index of Consumer Sentiment increased by 5.6% in January from 113.8 in December to 120.1 in January.
Westpac economists label the outcome as a “very strong result”, given the Index is seasonally adjusted and therefore takes account of traditional January optimism. They point out the index remains 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.
They highlight the confidence of those respondents who currently hold a mortgage has reached its highest level since 1994 when Westpac first collected data using categories defined by home ownership.
These categories of the Index are not seasonally adjusted, however, but the economists still maintain it still deserves to be noted that the rise in the confidence of those respondents with a mortgage was up 16.7% in January compared to the average rise in January of 8.6%.
Westpac believes it is likely that the most important fillip to confidence in the month was provided by the continuation of positive surprises on the employment situation. Last week it was reported that the national unemployment rate in Australia had surprisingly fallen from 5.6% to 5.5% in December. An additional 35,200 jobs had been created in the month and the media (and economists) are now speculating that the unemployment rate has peaked. Westpac backs that view.
Supporting the importance of the jobs market in buoying confidence, the economists note that over the course of 2009 the Westpac-Melbourne Institute measure of how households assess their job security has improved substantially. Four of the five components of the Index increased in January. All components are seasonally adjusted.
Assessments of “Family finances compared to a year ago” increased by 5.2%; expectations about family finances “over the next 12 months” increased by 10.5%. Expectations for “Economic conditions over the next 12 months” rose by 6.8% although expectations for “economic conditions over the next 5 years” fell by 2.1%. Opinions on whether it is a “good time to buy a major household item” rose by 7.7%.
Westpac expects to see another rate hike of 0.25% to be announced by the RBA on February 2 with the likelihood of another two increases of 0.25% each by June.
