CONSUMER CONFIDENCE: There are now more optimists than pessimists in Australia

Photo by Dan Istitene/Getty Images

Australian consumer confidence lifted modestly in August, according to the latest Westpac-MI consumer sentiment survey.

The surveys headline index lifted 2% to 101.0, indicating that there are now more optimists than pessimists in Australia, albeit fractionally.

The gains were broad-based in nature – putting it at odds with the ANZ-Roy Morgan survey released just a day earlier – with four of the five survey components strengthening in August, led by a 4.3% jump in expected family finances in the year ahead.

There were also modest increases recorded in current family finances, economic conditions over the next 12 months and whether now was a good time to buy a major household item.

The only component to decline was perceptions towards the economic outlook looking five years ahead, slipping marginally by 0.7%.

As the table from Westpac shows below, three of the five survey components are now higher than what they were a year earlier.

Bill Evans, chief economist at Westpac, wasn’t surprised by the modest increase, noting that while sentiment tends to lift following a rate cut, the fact it was largely expected, and not passed on in full to the vast majority of mortgage holders, likely contributed to a muted gain.

“(In May) the index lifted by an impressive 8.5% from 95.1 to 103.2. That was an exceptionally large positive response and much stronger than the average rise following rate cuts historically. That can be explained by a number of factors,” he said.

“Firstly, there was a larger surprise element to the May decision with, arguably, significantly less intense media speculation than we saw in August. Secondly the standard variable mortgage rate offered by most banks was reduced by the full 0.25%, whereas in August the four major banks only reduced variable rates by 0.10-0.14%.

“Finally, the index was coming from a significantly lower starting point in May (95.1) than in August (99.1),” he added.

In an outcome that will likely be welcomed by homeowners, lamented by those looking to buy and perhaps concerning to the RBA — particularly given its view that risks in the housing market are diminishing — the survey’s measure on whether now was a good time to buy a dwelling index surged, led by respondents in New South Wales and Victoria.

“Westpac’s index of ‘time to buy a dwelling’ rose by 10.1% to be up by 9.2% over the last year,” notes Evans.

“In particular, the key states of NSW and Victoria showed strong improvements. The index lifted by 19% in NSW and by 12.8% in Victoria.

“This is particularly significant for the key Sydney market where the index is now 61% above the average of the second half of 2015 when confidence collapsed in the Sydney housing market,” he added.

While the separate house price expectations index was basically flat from July, Evans notes that it has already increased by 28% since the end of 2015.

Combined, the two indices certainly don’t suggest that Australia’s enthusiasm for residential property is waning, especially in eastern states.

Following the release of the August sentiment report, Evans reaffirmed his forecast that Australian interest rates will likely remain unchanged for the remainder of the year.

“By November, consistent with some of the messages in this survey we expect that economic conditions will have firmed sufficiently for the Bank to be more patient with its inflation objective. It may recognise that rigid adherence to the current inflation target of 2–3% might not be the best way to run policy in this current low inflation world,” he said.

“Accordingly we expect that the Bank will decide to hold rates steady in November.”

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.