Consumer sentiment rises to highest point in two years, Westpac figures reveal

The economy has been given another jolt of good news, with the latest consumer sentiment figures from Westpac showing the survey has reached its highest point in two years.

The good news comes despite the RBA’s decision this month to keep interest rates on hold. Instead, economists say the cuts made through 2011 and 2012 are now beginning to take hold.

Peter Strong, chief executive of the Council of Small Businesses of Australia, said the figures were pleasing – and noted there could be benefits for small businesses.

“Consumer sentiment and small business sentiment tend to follow each other,” he said.

However, he did note that sentiment still isn’t following through into retail sales, which are still relatively weak.

In a statement, Westpac economist Bill Evans said sentiment had risen 15.1% over the past year, and is now at its highest point since December 2010.

“The rate cuts had been having limited impact on consumer confidence,” he said. “However, in recent months we have seen the accumulation of the cuts appearing to be genuinely boosting confidence.”

The timing of the rate cuts’ impact has been a point of contention among both businesses and economists. Businesses have been waiting to see whether the changes would impact consumers’ buying habits.

The Consumer Sentiment index is now at 110.5 points, above the 100-point level separating optimism and pessimism among consumers. Several sub-indexes are also on the rise, with the index tracking views on family finance compared to a year ago increasing by 3.9%. The sub-index tracking views on family finances a year from now also rose by 3.1%.

“Key observations are that, since December, while news was seen as remaining negative on all categories except interest rates, assessments have improved markedly around domestic economic conditions, budget and taxation and especially international conditions,” Evans said in a statement.

As for the next movement, Evans said the RBA will likely stay on course next month but may even drop rates again later this year.

“The risk is around the labour market. Concerns around employment remain elevated,” Evans said.

“Sustained improved confidence levels will require improving prospects in the labour market. Until those signals become apparent, supported by improving business confidence, the Reserve Bank is likely to retain its clear easing bias.”

Strong says higher consumer sentiment is good, but also notes “sales figures are still not reflecting that” just yet.