During most of the period between 2014 and 2018 there has been a divergence between consumer sentiment and business confidence in Australia. The two sectors appeared to have converged again in July but then September’s survey indicated consumer sentiment had deteriorated while business sentiment had recovered slightly. This latest survey suggests the two sectors may have once again synchronised with each other.
According to the latest Westpac-Melbourne Institute survey conducted early in October, households’ levels of optimism increased as the Consumer Sentiment Index moved up from October’s reading of 101.5 to 104.3. Any reading above 100 indicates the number of consumers who are optimistic is greater than the number of consumers who are pessimistic. The long-term average reading is just over 101.
Westpac’s chief economist Bill Evans initially seemed perplexed. “This is a surprisingly strong result. In particular, respondents are much more positive about their own finances. That is despite consistent reports around weakness in the housing markets in the major capitals and the sharp falls in the equity market through October. However, there may be an explanation. “Low interest rates and their prospect of being sustained for some time are clearly supporting confidence. For example, the confidence of those respondents with a mortgage increased by 4.3%.”