Last week's rise in consumer confidence bodes well for the most important part of Australia's economy

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Australian consumer confidence bounced back last week, as the weekly survey from ANZ and Roy Morgan rose by 2.3% to a reading of 117.9.

It partially offset last week’s 3.5% fall and, importantly, gains led by a sharp increase in views towards current household finances which rose by 6%.

That followed consecutive falls for the sub-index in previous weeks which ANZ described as “a little worrying“.

All four of the major sub-indexes across household finances and the broader economy registered gains last week, which helped keep the index sitting comfortably above its long-term average of 112.9:

The survey is based on around 1,000 face-to-face interviews, conducted over the most recent weekend.

“It is encouraging to see confidence recover after being hit by equity market volatility and domestic political uncertainty in consecutive weeks,” said David Plank, ANZ’s Head of Australian Economics.

“A broad based improvement suggests that confidence remains supported by strong fundamentals, underneath the weekly volatility.”

Plank said the pickup in sentiment towards current finances is an important indicator for the consumption outlook, which comprises around 60% of Australian GDP.

In view of that, last week’s rebound is a good sign, particularly in light of the recent challenges faced by Aussie households.

Australian consumers have had to navigate a notable downturn in house prices, while household debt remains high. And although last week’s quarterly wage data met expectations, there are still few signs of upward pressure on wages in the economy.

“Following our recent focus on household finances and the headwinds households face, we note that overall financial conditions have moved up last week, driven by a turn in views towards current conditions,” Plank said.

“This is particularly encouraging given that the RBA has flagged household consumption as a key area of uncertainty in its outlook for 2018.”

In the sub-indexes for the broader economy, view towards current conditions rose by 0.4% while there was some weekly volatility in views toward the outlook over the next five years — which jumped 6% after an 8.8% fall the previous week.

“Though economic conditions have fallen from their peak, some correction was not unexpected given their rapid run up since November,” Plank said.

“Even now, aggregate economic conditions remain well above their long term average, consistent with a robust labour market and strong activity.”

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