Australian consumer confidence soars in August

Australian consumer confidence has staged a dramatic turnaround in August with the Westpac-MI consumer sentiment index jumping 7.8% to 99.5.

The increase, the largest percentage increase since February 2015, left the index at highest level since May – right after the federal budget.

Large improvements were recorded in sentiment towards family finances, both compared to a year earlier and in the year ahead. The former jumped by 15.5% with the latter rising by a smaller 3.9%.

Reflective of the impressive gains in perceptions toward family finances, sentiment towards the economy also rose strongly. Expectations for the year ahead soared by 13.4%. Looking beyond the medium term, expectations for the economy five years ahead jumped by 5.8%.

Unsurprisingly given the moves above, sentiment on whether now was a good time to buy a major household item also increased by 3.7%.

In a sign that higher house prices – something that boosts wealth for most Australian households – is starting to have a positive wealth effect, Bill Evans, chief economist at Westpac, noted that “ongoing positive news around house prices may also have buoyed confidence. Certainly there was a much larger lift in the confidence levels of those respondents who wholly own a property (up 6.2%) or who hold a mortgage (up 11.0%) than those who are out of the housing market (up 4.3%)”.

An improved outlook for the labour market may have also contributed to the boost in overall sentiment levels.

The surveys unemployment expectations sub-index fell by 2.1% following a 1.3% decline in July. A decline indicates that respondents are more confident towards the labour market outlook.

In a surprising result, particularly given financial markets continue to price in the possibility of further interest rate cuts from the RBA, most survey participants believe mortgage rates will rise over the next 12 months.

“In our special question around the outlook for mortgage rates 55% of respondents expect mortgage rates to rise over the next 12 months; 35% expect rates to be steady; and 5% expect further rate cuts (5% with no opinion)”, said Evans.

Having plunged previously, sentiment towards whether now was a good time to purchase a dwelling bounced by 8.2%, recovering around half the ground lost in July. The only state not to record an improvement was NSW – the largest housing market in the country – with sentiment slipping by a further 3.3%. The index for NSW has now fallen 22% in just two months.

Perhaps reflective of the recovery on whether now was a good time to buy a dwelling, the surveys house price expectations index fell by 5.6%, leaving the index down 10.3% from levels of a year ago.

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