Things are beginning to look up with the Westpac Melbourne Institute Index of Consumer Sentiment rising by 2 per cent to 110.5 in March from 108.3 in February.
Westpac's chief economist, Bill Evans, said it is a strong result following the 7.7 per cent jump in the index which was printed in February and marks the fifth consecutive month the Index has registered above 100.
“Consumers would have been buoyed by the positive run on markets. The sharemarket continued its strong start to the year, rising a further 3% between the February and March surveys to be up 10 per cent for the year and 20 per cent from its September low. Gains have been impressive offshore as well with the Dow Jones up 10% so far in 2013, reaching a new record high,” he said.
“Other market factors that tend to affect sentiment were less positive though, with petrol prices were up 4¢ a litre between February and March to just under $1.50/litre nationally, and the Australian dollar slipping another cent vs the US dollar following a 1.8¢ decline last month.”
Also, there was a solid increase in the components of the Index which measure how respondents assess their family finances.
“The sub-indexes tracking views on ‘family finances vs a year ago’ increased by 3.9 per cent; and ‘family finances over the next 12 months’ rose by 3.1 per cent. There were further improvements in the economic outlook with the subindexes tracking views on ‘economic conditions over the next 12 months’ up 0.8 per cent; and "economic conditions over the next 5 years’ up 0.8 per cent. Surprisingly, opinions on "whether now is a good time to buy a major household item" cooled, with this sub-index down 1.6 per cent,” Evans said.
When the Reserve Bank Board next meets on April 2, Evans predicts the cash rate will not change until later in the year.
“The clear signal from this survey is that the Bank's rate cuts are gaining some traction with households. This is being significantly supported by perceptions of much improved conditions in the world economy. The risk is around the labour market. Concerns around employment remain elevated. Sustained improved confidence levels will require improving prospects in the labour market. Until those signals become apparent, supported by improving business confidence, the Reserve Bank is likely to retain its clear easing bias,” he said.