Australians are feeling confident in early 2017

Photo by Mark Nolan/Getty Images

Australian consumer confidence rebounded strongly at the start of 2017, hitting the highest level seen in over three months.

The ANZ-Roy Morgan consumer confidence index surged by 5.9% to 120.1 last week, leaving it well above its long-run average of 112.8.

It now sits at the highest level seen in 15 weeks, and is within touching distance of the multi-year peak of 120.6 struck in late September.

The weekly increase followed a similarly large decline at the end of 2016 when confidence levels tumbled on the back of Australia’s Q3 GDP report which revealed the economy contracted at the fastest pace since the global financial crisis.

Seemingly, that’s old news now — and perhaps rightfully so — with consumers far more optimistic than usual.

That mood was reflected in the surveys five subindices will all recording stellar gains to start the new year.

“Households’ views of economic conditions over the next 12 months bounced a solid 11.2%, almost entirely reversing last month’s decline,” said Jo Masters, senior economist at ANZ, noting that views towards the economy over the next five years also rose by a solid 2.2%.

That boost was mirrored by sentiment towards household finances, said Masters.

“Households’ views towards their finances compared to a year ago rose 3.0% and now sits at the highest level since the end of September 2016, when the index reached a post-GFC high.

“Households’ views towards their future finances also improved, up 3.5% last week, and are in a strong upward trend.”

The final component within the survey — whether now is a good time to buy a major household item — also impressed, jumping by a whopping 10.1%, completely reversing the decline in the previous survey.

While Masters admits that seasonality may have played a part in the strong rebound — relaxing on summer holidays tends to boost sentiment, understandably — she says that the improvement in views towards current family finances is important, noting it often signals future trends in household spending, the largest component within the Australian economy.

“While consumers tend to be more optimistic in January, likely due to the holiday season, it is a positive sign for the economy that households are particularly upbeat about their current financial situation,” she says.

“This index is a reasonable indicator of consumer spending, suggesting a solid Christmas and holiday spending period is underway.”

Looking ahead, Masters believes that strength in consumer spending is important to support economic growth, “particularly given that the housing construction cycle looks to be peaking.”

“While weak wage growth remains an issue for household incomes, it is encouraging that households’ views on future finances are in a strong upward trend, likely supported by a solid labour market and rising house prices,” she says.

The rebound in sentiment seen last week is welcome news, particularly as it follows strength in other household-related economic data in recent months.

Australian retail sales have accelerated in recent months following a lacklustre period of growth in early 2016, while economy-wide spending — as measured by the Commonwealth Bank’s Business Sales Index — grew at the fastest pace seen since before the global financial crisis in November.

On balance, elevated consumer confidence suggests this rebound in household spending may be the start of a longer lasting trend, rather than an aberration.

Markets will get further news on this front on Tuesday with the ABS releasing Australia’s retail sales report for November.

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