Consumer confidence jumps to two-year high

Consumer confidence has risen to its highest level in just over two years, on a surge in optimism about the economy.

The widely watched Westpac - Melbourne Institute consumer sentiment index rose 7.7 per cent in February to 108.3, the highest level since December 2010.

An index level above 100 indicates that optimists outnumber pessimists.

Westpac's chief economist Bill Evans says the monthly jump in confidence was the best since September 2011, and is probably a catch-up by households after an extended period where they failed to respond to 175 basis points in interest rate cuts.

"The more positive February reading suggests lower interest rates may finally be starting to gain more traction with the consumer," he noted in the report.

"That said, confidence is still well below the levels recorded during the last easing cycle in 2008-09 which saw sustained readings of around 120." Mr Evans says, aside from the rate cuts, a rise in home values and surge in share prices is likely to have lifted the result.

"The ASX rose 4.8 per cent between the January and February and surveys and is up 13.8 per cent from its mid-November low," he explained.

The sub-index tracking consumer expectations for the economy over the next year surged 14.7 per cent, while households were also more optimistic about the five-year economic outlook, with that sub-index up 10.8 per cent.

However, households' assessments of their own finances remained below average, despite rising in February.

Even though households continue to say their personal finances are not that healthy, the sub-index of whether now is a good time to buy a major household item rose another 5.5 per cent to its highest level since October 2010.

Mr Evans says consumers are similarly optimistic about home and vehicle purchases.

"Consumers also remain very positive on house and car purchases.

The index tracking views on time to buy a dwelling edged 3.3 per cent lower in February but was coming from a very high starting point," he observed.

"Similarly, the index on time to buy a vehicle was down 4.2 per cent in the month but remains well above its long run average.

"How much this is a reflection of improved affordability versus a firm intention to buy remains unclear." Bill Evans warns the current lift in confidence is fragile, and could be quickly eroded if the current weakness in sectors of the economy worsens.

"The non-mining business sector also looks an unconvincing prospect to help offset the mining slowdown with higher investment.

Without businesses supporting the economy by lifting investment and employment plans, consumer optimism could quickly fade," he cautioned.

"Consumers could also lose confidence if the more positive tone on the global economy and share market rally are not sustained."

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    0.9298+0.0011+0.12%
    AUDUSD=X
    0.5538+0.0003+0.06%
    AUDGBP=X
    0.6726+0.0005+0.07%
    AUDEUR=X
  • Commodities
    Commodities
    NamePriceChange% Chg