Fed:Consumers grow in confidence that worst is over

AAP General News (Australia)
08-12-2009
Fed:Consumers grow in confidence that worst is over

CANBERRA, Aug 12 AAP - Consumers are becoming increasingly certain that the worst of
the economic downturn has passed, with new data showing a further lift in sentiment despite
the threat of rising interest rates.

The Westpac-Melbourne Institute consumer sentiment index rose a further three per cent
in August to its highest level in nearly two years, and up a staggering 43.6 per cent
from its 2008 low.

"The message is clear - as far as consumers are concerned, the worst of the current
downturn appears to have passed," Westpac senior economist Matthew Hassan said on releasing
the data on Wednesday.

The index is now up 27.8 per cent since May, the biggest three-month gain since the
survey began in 1975, and by a wide margin.

The only comparable surges in sentiment were seen coming out of the recessions of the
early 1980s (22.8 per cent) and early 1990s (20.3 per cent).

Economic data in the past month showing a 4.2 per cent rise in house prices in the
June quarter and the jobless rate stabilising in July at 5.8 per cent would have helped
the consumer mood, Mr Hassan said.

"Notably, the August report showed no impact from the main negative in the month -
the RBA's clear shift from an easing bias to a neutral stance with indications that rates
may need to rise," he said.

"Even in the `hyper-interest-rate sensitive' mortgage belt, sentiment still posted
a robust six per cent gain in August."

Recent commentary by the Reserve Bank of Australia (RBA) has dropped the possibility
of a further cut in the official cash rate.

Other positives in the past month were a 12 per cent jump in share prices, a 1.2 per
cent fall in petrol prices and a four US cent jump in the Australian dollar.

Consumers' views on the economic outlook were also upbeat with expectations for the
next 12 months increasing by 11.2 per cent, to stand at an extraordinary 113 per cent
higher than March.

Other components also increased.

The index for `whether now is a good time to buy a major household item' rose 2.2 per
cent to its highest level since mid-2007.

Other indices on `time to buy a dwelling' and `time to buy a car' also rose 1.6 per
cent and 3.1 per cent respectively and stand above long-run historical averages.

"The continued rally in consumer confidence in August underscores the resilience of
consumer demand," Mr Hassan said.

"The economy still has to negotiate a 'soft patch' near term as policy boosters drop
out. Nevertheless, we expect the Reserve Bank to begin the cautious process of `normalising'
rates in early 2010 with a 25 basis point increase in February."

AAP cb/ldj

KEYWORD: CONSUMERS

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