Consumer confidence is continuing its surge, with the Westpac–Melbourne Institute Index of Consumer Sentiment increasing by 5.6 per cent in January to 120.1 from 113.8 in December.
Westpac’s chief economist, Bill Evans, said it was a very strong result.
“The index is seasonally adjusted and therefore takes account of traditional January optimism,” he said. “Nevertheless it is still above its level of last September prior to the Reserve Bank’s record three consecutive rate increases over the three months from October to December.
“In other convincing evidence that households appear to have comfortably absorbed the higher interest rates, we note that the confidence of those respondents who currently hold a mortgage has reached its highest level since 1994, when we first collected data using categories defined by home ownership. These categories of the index are not seasonally adjusted, but suffice to note that the rise in the confidence of those respondents with a mortgage was up 16.7 per cent in January compared to the average rise in January of 8.6 per cent.”
Clearly a major source of relief for households was the absence of a further rate increase, said Evans.
“With no meeting of the Board of the Reserve Bank in January the record run of three consecutive monthly increases in interest rates was interrupted. The share market also supported confidence with a rise of 4.2 per cent although petrol prices did increase by a solid 4.4 per cent.”
The major reason for the rise in confidence was the fall in unemployment.
“Last week it was reported that the national unemployment rate had surprisingly fallen to 5.5 per cent from 5.6 per cent in December. An additional 35,000 jobs had been created in the month and the media is now speculating that the unemployment rate has peaked. Westpac certainly holds that view,” he said.
Family finances compared to a year ago increased by 5.2 per cent, expectations about family finances over the next 12 months rose by 10.5 per cent, expectations for economic conditions over the next 12 months rose by 6.8 per cent, but expectations for economic conditions over the next five years fell 2.1 per cent. Opinions on whether to buy a major household item grew 7.7 per cent.