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Consumer confidence bounces back

Businesses have welcomed news of a surprise jump in consumer sentiment, as the number of optimists outweighs the number of pessimists for the first time in some months.

The Westpac–Melbourne Institute Index of Consumer Sentiment increased 4.2 percent from 97.1 in January to 101.1 in February.

According to Westpac chief economist Bill Evans, all components of the index increased for the month of February. How people assess their family finances improved and the sub-indexes tracking family finances compared to a year ago rose 7 percent and family finances over the next 12 months increased 2.6 percent.

Economic expectations also improved, with the sub-indexes tracking economic conditions over the next 12 months up 0.9 percent and economic conditions over the next 5 years rose 9.9 percent.

Views on whether now is a good time to buy a major household item also rose, by 1.8 percent.

Evans said the result appears strong, but the index still remains 5.2 percent below its year-ago level and 13.6 percent below its two year-ago level. It does however indicate some “lagged recognition” from consumers about the two Reserve Bank interest rate cuts in November and December.

“Other factors would have clearly supported an increase in confidence. News on the international scene had clearly improved since the survey in January. The average level of the Australian dollar jumped from USD1.03 during the survey in January to USD1.08,” Evans added.

Evans said he continues to believe lower interest rates are required, “and the best policy response is to move earlier rather than delay.”

Accordingly we retain our view that a move in March is likely while emphasising that developments in the domestic economy, particularly around the labour market, will eventually force the Bank’s hand even if they choose to defer in March”, Evans added.