Finally: Consumer sentiment at highest level since 2010

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At long last, consumer sentiment has risen by 7.7% this month to 108.3, according to the Westpac Melbourne Institute Index of Consumer Sentiment.

Westpac's chief economist, Bill Evans, says reading is the strongest result since December, 2010 and is the biggest monthly gain since September, 2011.

“It follows an extended period in which sentiment has disappointed, posting at best ‘neutral’ readings despite a substantial 175bp reduction in interest rates since October 2011.”

Evans says the more positive February reading suggests lower interest rates may finally be starting to gain traction with the consumer, but cautiously notes that confidence is still well below the levels recorded during the last easing cycle in 2008-09, which saw sustained readings of around 120.

“February’s lift in sentiment is despite fairly mixed influences in the month. The Reserve Bank left interest rates unchanged at its February meeting but signalled it was prepared to lower rates further if necessary. Housing markets continued to show signs of recovery although not a particularly vigorous one.”

He says sentiment may have been buoyed by a strong start to the year for financial markets, while news from offshore has also been ‘broadly supportive’.

“All Index components recorded gains but the strongest lift in sentiment is around views on the economy…Consumers had more mixed opinions on their finances…Family finances have been a major weak spot for confidence over the last two year with persistently negative readings well below long run averages.

Happily for brokers, Evans says consumers also remain very positive on house purchases. The index tracking views on "time to buy a dwelling" edged 3.3% lower in February but was coming from a very high starting point. How much this is a reflection of improved affordability versus a firm intention to buy, Evans says, remains unclear.

 “The Reserve Bank Board next meets on March 5. The February consumer sentiment report is welcome news with the solid gain in confidence the most promising sign yet that lower interest rates are starting to generate more positive traction with consumers.”

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