Despite poor Christmas sale results, consumer sentiment has made a modest recovery.

The Westpac Melbourne Institute Index of Consumer Sentiment increased by 2.4 per cent from 94.7 in December to 97.1 in January.

However, according to Bill Evans, Westpac chief economist, the results are “somewhat disappointing”.

“Despite the Reserve Bank having cut the overnight cash rate by a total of 50bps with the major banks passing on the full cut to variable rate mortgage borrowers the Index is still slightly below the level which it registered before the first rate cut. In effect, at this stage, the rate cuts have been unable to raise consumer confidence,” he said.

“That does not mean that the cuts have necessarily had no effect. Given ongoing financial turmoil in Europe; a flat housing market and further weakness in the labour market sentiment is likely to have been lower without the rate cuts.

This reading represents the sixth out of the last seven months where the Index has indicated that pessimists outnumber optimists. The average read over those last seven months is 96.0 only 1.1 per cent below the current level and 8.8 per cent below the average for the previous seven months.

“On a number of occasions we have highlighted our particular interest in those components of the Index which measure how respondents feel about their own finances. Economic behaviour is likely to be more heavily influenced by how individuals feel about their own financial position than the overall state of the economy,” Evans said.

“In this survey the results around those issues were disappointing. The sub-index tracking responses on "family finances compared to a year ago" fell by 2.5 per cent while the sub-index tracking responses on "family finances over the next 12 months" rose by only 0.7 per cent. Nevertheless a positive aspect of the recent results is that expectations on family finances are now registering their highest level since February 2011.

“Reasons for the overall rise in the Index came from the sub-indexes tracking opinions on "economic conditions over the next 12 months" – up 9.5 per cent; “economic conditions over the next 5 years" – up 2.4 per cent; and "time to buy a major household item" – up 2.4 per cent.”