Consumer confidence is improving; rates will rise next August [video] | Westpac

Westpac’s Chief Economist Bill Evans gave his thoughts on the impact of rising consumer sentiment on interest rates.

Confidence grew by a modest 1.9% in November, which he says is an..

“unsurprising but still disappointing result”.

The Westpac Melbourne Institute Index of Consumer Sentiment now sits on 96.6, up from 94.8 last month.BillEvansWestpac

Evans highlights the Index is 12.5% below it level one year ago and 3.6% below its level before the lead up period to the Commonwealth budget in May.

“In fact, we have now seen nine consecutive months where pessimists have outnumbered optimists. That is the longest run of pessimists outnumbering optimists since the Global Financial Crisis and before that the recession of the early 1990s.”

Evans points to positive news on the financial markets that may have contributed to the rise in the Index, including a 5% rise in the share index, a stabilising dollar and rates remaining on hold.

“News on housing continues to be positive… Although price appreciation has slowed, auction clearance rates are high.”

The sub-index’s revealed a mixed picture: ‘family finances vs a year ago’ was down 4.2%, while ‘family finances next 12 months’ grew by 3.1%. The ‘good time to buy a major household item’ fell by 0.8% to be 13% down over the last year, while 38% of respondents indicated they would spend less on Christmas gifts this year compared to last year.

Property market sentiment down on last year:

As for prospects in the housing markets, the ‘whether now is a good time to buy a dwelling’ index grew by 3.1%, however is down 13.3% on a year ago.

Evans noted:

“House price expectations increased in the month by 1.4% but this index is still down by 14.3% over the year,

Most of this fall has occurred since September.

Up until then expectations were fairly solid but over the last two months the Index seems to have established a base which is down by around 10% since September.”

What’s going to happen to interest Rates?block building

Westpac is not forecasting a rate hike until August 2015.

“Critical to that view is a lift in consumer spending which in turn will encourage businesses to invest and employ.

The Consumer Sentiment Index has lifted modestly from its post Budget lows but the pace of improvement has been very disappointing. Strengthening balance sheets and an improving world economy are likely to be key to further recovery in Consumer Sentiment.

However, in the near term, prospects for a boost in consumer spending going into the end of the year are not encouraging.”


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