There has been a surprise surge in consumer sentiment with the Westpac Melbourne Institute Consumer Sentiment Index increasing by 9.3 per cent to 109.4 in July from 100.1 in June.
Westpac chief economist Bill Evans said this was quite a stunning result.
“My personal view had been that given that last month we saw the second largest increase in the index since we started measuring the index in 1974 any rise in July would have been a great result.
“This is now the highest level of the index since December 2007. It is 38.5 per cent above its level a year ago and at 109.4 optimists decisively out-number pessimists for the first time since December 2007,” he said.
“This rise is despite no boost from the traditional drivers of confidence – petrol prices actually increased by 3.6 per cent; the Reserve Bank left rates on hold in June despite its maintaining its easing bias; we even saw one bank modestly raising mortgage rates despite no rate change from the Reserve Bank.”
Evans said the huge financial handouts introduced by the government to counter the global financial crisis provided the boost to retail sales and supported this surge in confidence.
“The unexpected resilience of the employment figures has also played a role,” he said.
However, over the last two months the unemployment rate has remained steady. As of June, the Westpac-Melbourne Institute measure of job security has improved by 12 per cent since its low in February, although it is still 20 per cent lower than a year ago.
Evans still expects the unemployment rate to rise further and reach 7.5 per cent by the end of the year.
“We still expect, despite an improving outlook for consumer spending, that second quarter GDP will print negative, reviving recessionary concerns. Evidence from the last recession points to confidence levels taking a solid hit once the unemployment rate starts to rise quickly.”
Four of the five components of the index increased though and in particular respondents were positive about the economic outlook.
Expected economic conditions over the next 12 months increased by 19.6 per cent; expected economic conditions over the next five years increased by 15.7 per cent. Family finances over the next 12 months increased by three per cent; family finances compared to a year ago fell by 0.9 per cent; and whether now is a good time to buy major household items increased by 9.5 per cent.