Rate cut, lower fuel prices drive surge in Australian consumer sentiment

Getty/ Marco Di Lauro

Australian consumer sentiment, or lack thereof, is one of the key missing elements in the outlook for domestic growth.

So the release this morning of the Westpac Melbourne Institute Consumer Sentiment index which showed a huge surge of 8% from 93.7 in January to 100.7 in February is the best piece of news for the economy in ages.

Westpac Chief Economist Bill Evans said: “This is a much stronger result than we had expected. It represents the first time since February last year that we have seen a majority (albeit miniscule) of optimists over pessimists. It is also the highest level of the Index since January last year.”

This level is back near the long run average and closes the gap that has been evident for months between the monthly Westpac consumer sentiment index and the weekly ANZ consumer confidence index. That suggests that confidence is indeed around its long run average.

That’s a much healthier outlook for the economy.

Equally, Evans said that:

All five components of the Index increased in February. Views about finances were buoyant with the sub-index tracking assessments of ‘finances vs a year ago’ up 12% and the sub-index tracking expectations for ‘finances, next 12 months’ up 7.6%. The economic outlook also improved sharply with the sub-indexes tracking expectations for ‘economic conditions, next 12 months’ up 10.3%; and ‘economic conditions, next 5 years’ up 13.3%.

The sub-index tracking assessments of “time to buy a major household item” was steadier, up only 0.5%.

That’s all good news as is the 1.9% fall in consumers unemployment expectations to 147.8 – a lower number means people are less concerned about losing their jobs.

The surge hasn’t dissuaded Evans from his call for a follow up rate cut from the RBA in March but he notes that Westpac recognises: “a perfectly respectable case can be made for the Bank to pause for a month or two to assess developments in the housing market.” Having said that he still believes that: “February is not the end of this rate cut cycle with another cut extremely likely over the next three months.”

That really will be good for confidence.

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