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Consumer sentiment rising, but still weak

The Westpac Melbourne Institute Index of Consumer Sentiment has risen 8.1 per cent in September, after falling to a two-year low in August, spelling good news for consumer-facing businesses.

Following a clear slowdown in the global and domestic economy, the Reserve Bank of Australia is no longer threatening to raise interest rates, comforting anxious families.

“This is a surprisingly strong result. We think it emphasizes just how important interest rates to households,” Westpac Chief Economist Bill Evans said.

The August survey of Consumer Sentiment found that over 70 percent of respondents were expecting interest rates to increase over the next year.

Evans said that he suspected this more relaxed feeling about interest rates has been the chief cause for the sudden boost in confidence.

The second contributing factor for consumer confidence is likely to be the strong recovery in economic growth in the June quarter, which through wide media coverage “would have boosted households’ spirits,” said Evans.

In monitoring consumer sentiment, Westpac surveys respondents every three months on news items they have recalled. Those areas that were most commonly recalled centered around economic conditions, taxation, international conditions, employment and interest rates.

Evans said the most recent survey found that employment conditions rate much more negatively than any other news category, where “a year ago respondents were more positive on employment condition than any other category with the exception of the booming Australian dollar.”

The Reserve Bank is set to meet next on October 4, with policy development expected to show an actual cut in interest rates.

“The significant move in the Bank’s policy away from rate hikes to a neutral stance has helped boost confidence but we expect that over coming months that will not be sufficient to restore confidence to normal levels,” Evans added.