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Australians are feeling a lot more confident

Photo: Shutterstock.

On the back of a rebound in Australia’s stock market, a stronger-than-expected GDP print and a surging Australian dollar, Australian household sentiment rose strongly last week.

The ANZ-Roy Morgan consumer confidence index jumped 3.1% to 114.8, leaving the index above its long-run average of 112.7. It also reversed the 2.6% decline registered in the prior week, something that was put down to increased nervousness surrounding the taxation debate on housing that is currently ongoing in Canberra.

Unsurprisingly, given the strong December quarter GDP report released by the ABS last week, most of the strength was concentrated in perceptions towards the economic outlook.

Sentiment towards the year ahead surged 11.6%, outpacing an equally impressive bounce in perceptions looking five years ahead which jumped 8.6%.

Despite those improvements, sentiment towards consumer finances fell.

Current perceptions declined by 0.8% while those in the year ahead slid by a larger 1%.

The final component of the survey – whether now was a good time to buy a major household item – rose by 1.0%.

Here’s Warren Hogan on the survey’s findings.

The bounce in consumer confidence in the past week was underpinned by a strong bounce in the economic outlook subindices. Australian’s perceptions of the economic outlook would have been bolstered by the stronger than expected GDP data released mid-week. Last week also saw good gains on the currency and equity markets. By and large, property markets remain strong. Confidence has been volatile of late, reflecting the conflicting and often complex forces impacting the economy.

The good news is that the ‘pulse’ of confidence appears to be at or a little above long-run average levels. Australians can, in general, be described as being confident about the economy despite some ongoing worries about the long-term. The bad news is that these conflicting forces, including political and policy uncertainty, are likely to persist.

It now looks like 2016 is shaping up as a solid year for economic growth, albeit a little slower than last year. The strong bounce in commodity and equity markets in the past few weeks augers well and should support business confidence and hiring intentions. The extent to which this translates into employment growth will be central to the performance of the economy this year.

While the bounce in sentiment was impressive, they were largely built on temporary factors.

The strength in the labour market conditions remains the key to sentiment moving forward, with the outlook for household spending largely tied to how Australian’s feel about their job security, the prospect for obtaining new employment and future wage increases.

Recent labour market data suggests that conditions for hiring are cooling, hinting that the recent improvement in confidence may be hard to sustain in the period ahead.

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