Consumer sentiment showing signs of recovery

by Adam Smith14 Aug 2014
Consumer sentiment has continued to recover from the blow it took at the announcement of the Federal Budget.

The Westpac Melbourne Institute of Consumer Sentiment increased by 3.8% in August, a result Westpac chief economist Bill Evans said brought confidence back near pre-Budget levels.

"This is a pleasing result. The index is now only 1.2% below its level prior to the Federal Budget on May 13. Over the last three months the index has increased by a total of 5.9% indicating that much of the damage to confidence in the aftermath of the Budget has been repaired," Evans said.

But Evans said the index had not reclaimed any of the ground it lost between November 2013 and April 2014 when enthusiasm for the newly-elected government began to wane.

"The index is still around 10.8% of its post-election peak," he said.

Evans said a number of politically-based factors had boosted confidence.

"Firstly, since the last survey it has been announced that the unpopular carbon tax has been repealed. Secondly, households have also probably been buoyed by resistance in the Senate to many of the unpopular Budget measures," Evans said.

Cuts to interest rates have also made a difference to consumer confidence, Evans said. While the RBA has held rates steady, banks have aggressively cut rates for new loans. As a result, Evans said mortgage holders are more confident.

"In August we saw the confidence of those households with a mortgage jump 12.8%," Evans said.