Thursday, September 15, 2011

We've pulled back! We're now merely unconfident

Growing confidence that interest rates are not going up has pulled Australian consumers back from the brink.

The Westpac Melbourne Institute consumer sentiment index bounced 8 per cent in September after sliding 12 per cent in the previous two months.

At 96.9 points the index remains below the level at which optimists balance pessimists. had the index slid further instead of bounced this month it would have moved into territory last seen in the financial crisis.

The telephone survey of 1200 Australians was conducted last week as the Reserve Bank announced it would keep interest rates on hold and the national accounts showed the economy returning to growth.

“It shows just how important interest rates are to households,” Westpac chief economist Bill Evans said. “Since early May the Bank has been threatening to raise rates... As recently as August it was widely reported that the Board discussed a further rate increase. However, as a result of escalating global turmoil and evidence of a slowdown at home the Bank is no longer making such a threat.”

A decision by a number of banks to cut their fixed rate mortgage rates might have also “comforted anxious households”.

Coalition voters recorded the biggest jump in confidence, lifting their assessment of the future 15 per cent from recessionary to global crisis levels. Labor voters perked up 6 per cent, moving well into confident territory.

Treasurer Wayne Swan said the rebound reflected “rising incomes, strong investment, solid consumption, low unemployment and an economy that continues to outperform the rest of the developed world”.

“Of course, we know consumers have become more cautious,” he added.

The proportion of consumers believing bank deposits are the safest place for savings has climbed to its highest point since the economic troubles of 1975.

But at the same time opinion about whether now is a good time to buy a house has jumped 14 per cent.

“Consumers still harbour doubts that the financial crisis is truly over,” said CommSec economist Savanth Sebastian. “But the interest rate cuts are enticing potential buyers. Hits to the Commonwealth bank home loan website have jumped as potential home buyers once again do the maths to work out borrowing amounts and loan repayments.”

Separate figures show new home starts down 4.7 per cent in the June quarter with private home starts down 2.1 per cent.

Published in today's SMH and Age

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