Thursday, August 12, 2010

Oh to be Julia! The good news can't last. But it won't need to

Julia Gillard is hurtling towards polling day blessed. On top of sliding inflation, plunging unemployment and steady interest rates comes a boost in confidence that has has made us more ready to buy than at any time in the history of the Rudd/Gillard government.

Unpublished figures collected as part of the Westpac Melbourne Institute consumer sentiment survey show that when asked last week whether now was "a good time to buy a major household item" an astonishing 61 per cent of those polled said "yes".

It's the first time sentiment has been that strong since July 2007 at the frenzied height of the previous mining boom.

During the darkest days of the global financial crisis as few as 23 per cent of us thought it was a good time to spend.

Even better - for government understandably concerned about interest rates - there's little sign that we are actually spending, with retail takings climbing at less the rate of inflation. The household savings ratio is comfortably high at 2.7 per cent compared to negative territory during most of the previous mining boom.

"Just because you are generally happy with your lot, it doesn’t mean that you’re ready to go on a spending or borrowing spree," said CommSec economist Craig James. "We will need a few more months of stable interest rates before consumers are tempted to part with their cash again."

But the mood is infectious... The August confidence index rings in at 119 points, which means that across all the questions asked optimists outweigh pessimists by 19 percentage points. It also has not been that high since July 2007, the peak of the last mining boom.

Coalition voters have picked up on the trend, moving from an index of 90 (where pessimists outweighed optimists) to 110 in just two months. Although still less confident than labor voters whose score is an impressive 125, the gap between the two has been narrowing for three months.

"Clearly the most important factor was the decision by the Reserve Bank to keep its cash rate steady in August," said Westpac economist Bill Evans. "Its significance can be seen in the 10 per cent boost in confidence among folks with hold a mortgage."

Agreement that "now is a good time to buy a house" climbed 9 per cent in August. Agreement that "now is a good time to buy a car" climbed 7 per cent.

Asked about economic conditions over the next year optimists outweighed pessimists 2 to 1 with 45 per cent expecting good times. Asked about conditions over the next five years those surveyed were more guarded with 40 per cent professing confidence.

The survey finds city dwellers more optimistic than regional dwellers and Australians aged 18 to 24 the most optimistic of all with a confidence index of 131.

Later today Julia Gillard gets the final piece of significant economic news scheduled in the campaign - the July unemployment rate which is expected to hold steady at its 18-month low of 5.1 per cent.

Finance figures released yesterday show new lending slumping for the third time in four months sliding 5.4 per cent to its lowest point in four years as consumers and consumers and businesses wound back debt.

The only bright spot was lending to buy cars which, consistent with the confidence index, surged to $893 million in June, its highest point since 2007.

Published in today's SMH and Age

Consumer Sentiment Index August 2010

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