Thursday, March 12, 2009

They couldn't be getting traction, could they?

Consumer confidence appears to have bottomed as home sales have surged, despite a stream of negative Australian and international economic news.

The Westpac Melbourne Institute consumer confidence index remained broadly unchanged in February at a historic low, "on the face of it, a surprisingly good result," in the view of the bank's chief economist Bill Evans.

Consumers assessments of their own financial position dived a further 11 per cent in the month, but at the same time optimism about the economy itself in the years ahead surged 15 per cent.

Struggling for an explanation, Mr Evans said it "could only be interpreted as a strong vote of confidence that current policies are providing a strong foundation for the future"...

The Melbourne Institute survey took place as the Senate approved the government's contentious $42 billion economic stimulus plan including the $11 billion of payments to households that began flowing this week.

Home finance approvals soared 3.5 per cent in January in a continuing response to lower interest rates and to the part of last year's stimulus package that boosted the first home owner's grant.

First home-buyers made up the largest share of new loans on record.

Almost 40,000 contracts were entered into by first-time buyers in the three months to January, the best three month result since 2002.

"Prospective home-buyers are certainly finding the current conditions attractive and first home-buyers are attempting to take advantage of the current environment," said CommSec economist Savanth Sebastian.

"Unemployment is expected to rise over the coming year but housing related jobs such as builders, tradesmen and even real estate agents are likely to see plenty of work over coming months."

The sharp increase in the size of grants for new home buyers is due to expire in June.

At the National Press Club Finance Minister Lindsay Tanner gave no commitment to extending it other than to say that he was delighted that it was "proving to be as affective as we anticipated it would be".

"The question of whether that grant could be, should be extended is one that along with everything else, is open for debate within the Budget context," he said.

"It’s going to be a very tough Budget for us to deal with. And there are lots of other issues that we also have to give consideration to. So, I don’t wish to fuel any expectations about that, or indeed any other matter. I kept getting verballed about killing about half of the good things that we are supposedly were hoping to do, until I got in the way. But I don’t wish to fuel expectations on that one."

The brief run of encouraging economic news is likely to end with today's publication of the employment numbers for February. Market economists believe an extra 20,000 jobs will have been lost in the month pushing up the unemployment rate from 4.8 to 5 per cent - the highest rate in three years.

The government expects the rate to peak at 7 per cent next year after a 300,000 Australians join the unemployment queue.