The Westpac-Melbourne Institute consumer confidence index rose in August, by an amount which has surprised its creators. The index jumped from 92.2 in July to record 99.5 in August. Moves of this magnitude are usually associated with significant events such as Federal Budgets and interest rate changes. Westpac’s explanation is the move simply reverses the downwards moves in June and July which came about because of the short term effects coming from offshore i.e. Greece budget / banking crisis and Chinese share market volatility. A recording of 100 means optimists are in balance with pessimists and August’s result is a move back to a neutral setting.
Homeowners are more positive than renters although the majority expect interest rate rises in the next 12 months and thus the thought of lower rates is not responsible for higher levels of confidence. Survey respondents reported a higher levels of confidence in the labour market and Westpac sees this feeling as driving the less pessimistic result.
Bill Evans, Westpac chief economist, expects the current improvement in sentiment to be “unsustainable particularly given a resurgence of concerns around China and the evidence last week that the unemployment rate lifted to 6.3%.” However he does not think this will lead to a cut in rates. He said, “Westpac expects that rates will remain on hold over the course of the remainder of this year and in 2016. If, however, it became clear through the course of 2016 that the 3.75% growth outlook was likely to be achieved, and even exceeded, then rate increases would quickly move onto the radar screen.”
