Rapidly improving job prospects and recovering share market wealth are propelling us to spend as we haven't in years despite three consecutive rate hikes and the prospect of more on the way.
The latest Westpac-Melbourne Institute survey finds 59 per cent of us agreeing that "now is the right time to buy a major household item", well up from last year's range of 42 to 55 per cent and the best result since mid 2007.
The survey was conducted as Australia's official unemployment rate slid to 5.5 per cent and came as the mining giant BHP Billiton announced record production of petroleum, iron ore, nickel and zinc, boosted by big gains in the price of iron ore, copper, aluminium and nickel.
"Our sentiment survey is saying that if people feel confident about their job prospects they can cope with the current level of interest rates," said Westpac economist Bill Evans.
Westpac's overall measure of consumer confidence surged 6 per cent in January to be up 34 per cent over the year.
Asked about family finances a larger-than-usual 41 per cent of those surveyed said they expected an improvement over the next 12 months. Melbourne Institute staff were unable to find a more positive result in records to hand dating back 14 years...
"I was expecting an improvement but this is a stunning improvement," said Mr Evans. "To think that confidence could be back above where it was prior to three rate hikes is very strong indication that households are dealing very comfortably with higher rates, which means they will have to go even higher.
A SuperRatings report released yesterday showed the typical fund had bounced back 12 per cent in the six months to December, taking the total gain for the year to 12.9 per cent, a turnaround on 2008 in which funds lost 19.7 per cent.
Westpac is expecting a further three interest rate hikes this year, one when the Reserve Bank board next meets in February and then two more before June or until confidence takes a hit.
"My view is you always reach a point when there is a non-linear response to a rate hike, like pulling on a brick with a piece of elastic. Eventually you get a result that surprises everyone, but I think its 0.75 to 1.00 percentage points away," said Mr Evans.
A further 0.75 points of rate hikes would add a further $142 to the monthly cost of servicing a $300,000 mortgage.
Among the groups Westpac and the Melbourne Institute found the most confident were mortgage holders who felt the best in 16 years Australians aged 18 to 24 who were the most optimistic in 14 years.
Labor voters remain more optimistic than Coalition voters although the gap is narrowing.
A separately-released Department of Employment skilled vacancies survey found a further jump of 1 per cent in vacancies since December pointing to further employment gains.
"Taken literally in isolation it points to further outsized outcomes of 30,000 to 40,000 extra jobs per month swiftly lowering the unemployment rate to 5.1 per cent," said TD Securities economist Annette Beacher. "While not my core view, the risks are tilted that way at the moment."
Published in today's SMH and Age
Consumer Sentiment Report January 2010