Consumer confidence soars after rate cut: Economy roundup

The Westpac-Melbourne Institute Consumer Sentiment index rose by 7% in September from 86.2 in August to 92.2 in September

What a difference a rate cut makes.

The Westpac-Melbourne Institute Consumer Sentiment index rose by 7% in September from 86.2 in August to 92.2 in September, thanks to a sharp jump in the outlook of mortgage holders. Confidence among mortgagees bounced 10.8% during the month, compared to a more modest increase of only 2.4% for those folks who wholly own their home.

That said, Westpac chief economist Bill Evans describes the increase in consumer confidence in the last two months – up a whopping 16.7% – as “remarkable”.

“It is the sixth largest two-month rise since we first started measuring the index in the mid 1970s. The compound improvement comes from the 8% fall in petrol prices last month, which boosted the index by 9.1%, and of course this month’s good news on interest rates.”

It’s not completely rosy news though. Despite the big jumps in the last two months, the index remains 7.8% below the crucial 100 point mark, which means there are still more pessimists than optimists.

The survey also contained some good news for the ailing housing market, with the “time to buy a dwelling” index surging a stunning 21.2% in the three months to

June to now be 15.7% up on a year ago.

But the outlook for the automotive industry remains bleak. Confidence on purchasing a car was up 1.4% in the month but is still down by 29.4% over the year.

Investors don’t appear to be feeling quite as optimistic as consumers, with the local sharemarket sold off sharply after a horror night on Wall Street.

The US S&P500 shed more than 3% overnight as concerns mounted about the ability of big investment bank Lehman Brothers to raise much needed capital. Lehman shares fell a whopping 45% last night, dragging other banking stocks down with it.

In Australia this morning, the benchmark S&P/ASX200 index was down 90.3 points or 1.8% to 4889.8 points at noon AEST.

Resources stocks have been sold off heavily this morning, with BHP Billiton shares tumbling more than 4%.