Confidence up but will consumers shop?

Along with the increasing sun shiny days that spring brings to our part of the globe come the green sprouts of optimism among us, Australians all.

For the first time in 11 months, there are more optimists than pessimists in this land girth by sea. This is the latest indication from the Westpac-Melbourne Institute consumer sentiment survey that showed the index jumping to a reading of 101.35 in October from 97.87 in September - itself, an improvement from th3 95.45 recorded in August.

There were improvements galore in the October survey's sub-indices: family finance vs a year ago (up to 83.7 this month from 82.9 in September); family finance next 12 months (102.4 from 98.3); economic conditions next 12 months (102.6 from 95.8); economic conditions next five years (95.2 from 93.9); time to buy a major household item (122.8 from 118.5).

The "current conditions index" increased to 103.3 in October from 100.7 in the previous month while the expectations index improved to 100.1 this month from 96.0 in September.

Westpac chief economist Bill Evans explains the surveys latest results:

"Some of this likely stems from consistent coverage of the continuing improvement in the global economy with, in particular, improved confidence in the US growth outlook."

"An easing in concerns about potential interest rate rises was a likely factor."

...and improved consumer perception on the labour market. The "unemployment expectations index fell 3.3% to 129.2 in October, marking the lowest reading since June 2011 ... The move is broadly based with expectations improving across all the major states".

While the improvement in consumer optimism is encouraging, it's still early to conclude that this would eventually prompt an increase in household spending.

The latest ABS retail sales survey showed retail spending dropped by a bigger-than-expected 0.6% in the month of August. Worse, July's retail figure was downwardly revised from no growth to a 0.2% decline.

This is because despite the cheerier mood, Australians remain saddled with record high household debt, sluggish wages growth (zero real wages growth), rising utility costs, decreasing disposable income and dwindling savings. The Australian consumer has no choice but to cut back on spending on both essentials and discretionary.

There is no question that the Australian labour market is strengthening but just as elsewhere in many parts of the world, wages growth remains sluggish - 1.9% over the past four quarters to end-June 2017 - and whatever purchasing power consumers have is being eroded by inflation - the annual headline CPI inflation rate was 1.9% in the June 2017 quarter.

Besides, it remains to be seen if this one-month improvement in consumer sentiment could be sustained through the coming months.

Read more: USAustraliansWestpacBill EvansCPIWestpac-Melbourne Institute
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