Australian consumer confidence is surging

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Australian consumer confidence is at the highest level seen since November 2013.

The latest ANZ-Roy Morgan consumer confidence index surged by 2.1% last week, leaving the index at a 2.5-year high of 118.8.

It is now well above the series long-run average of 112.8, and provides an optimistic outlook for household spending in the months ahead.

The chart below shows movements in the index over the past four years. Given recent financial market volatility and the upcoming federal election, the surge in sentiment levels has been remarkable.

“The increase in confidence was broad-based, with consumers’ views about their finances leading the gains,” said ANZ.

“The indicator on ‘finances compared to a year ago’ bounced 3.1% last week and ‘finances in the next 12 months’ was up 1.1%.

“Consumers are also more optimistic about the economic outlook. Views towards ‘economic conditions in the next 12 months’ increased 2%, while views towards ‘the economy in the next 5 years’ also rose strongly, up 2.4%.”

The final component of the survey — whether now was a good time to buy a major household item — also increased by 1.6%.

Felicity Emmett, head of Australian economics at ANZ, believes that a number of factors led to the impressive survey result.

“Household confidence has likely been supported by a combination of positive factors: the RBA’s rate cut last month, robust economic growth, ongoing strength in the housing market and an improving labour market,” she says.

“The strength in the labour market in particular is likely to have been a key factor in the improvement in consumer confidence over recent months. And, as we’ve highlighted previously, it’s likely to continue to be a key driver of confidence.”

Although the upcoming federal election has, as yet, failed to make an impact on confidence levels, Emmett suggests that it, along with this week’s UK referendum on whether or not to leave the European Union, still presents risks on the outlook for near-term sentiment levels.

“Over the next few weeks, confidence has a few hurdles to overcome,” she says.

“This week’s Brexit vote, with its ability to drive volatility on financial markets, has the potential to impact domestic confidence, while closer to home the federal election campaign could affect confidence as we draw nearer to polling date on 2 July, although to date there are few signs that the long campaign has weighed on sentiment.”

Should the UK vote to remain in the EU on Thursday, something that will likely propel risk assets such as stocks and the Australian dollar higher, it’s likely that sentiment levels — already higher — will improve even further.

The outcome of the UK referendum should be known by late Friday morning AEST.

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