Strong labour market helps lift confidence

Simone Ziaziaris
(Australian Associated Press)

 

A stronger labour market and the passing of same-sex marriage legislation could be behind a monthly boost in consumer confidence, an economist says.

The Westpac Melbourne Institute Index of Consumer Sentiment rose 3.6 per cent to 103.3 points in December, with all five components of the index improved in the month.

That compares to a 1.7 per cent fall, to 99.7 points, in November when fears of rising home loan rates and the citizenship saga in federal parliament unnerved households.

Westpac’s chief economist Bill Evans said that, domestically, less concern around interest rate hikes, a strong labour market and positive flow-through from the passing of same-sex marriage legislation had improved sentiment in December.

“With the labour market remaining strong, respondents are generally more confident about the domestic economy and there is likely to have been a ‘feelgood effect’ from the passing of marriage equality legislation,” Mr Evans said in a statement on Wednesday.

Media coverage of proposed tax cuts in the US, plus easing tensions in North Korea may have supported an improved outlook for international conditions, he added.

Sentiment around current finances compared to a year ago hit an 18-month high, up 5.6 per cent to 89.6 points, but still remains well below the 100 mark that separates pessimism (below 100) from optimism (above).

Mr Evans said this suggests more consumers are seeing their finances deteriorate rather than improve.

But views towards finances in the next 12 months were more positive, with the sub-index reaching its most positive level in more than two years.

Consumers are also becoming more comfortable about the outlook for jobs, with fewer people expecting to become unemployed, with the unemployment expectations index falling 2.4 per cent to 127.6, its lowest level since May 2011.

“All major states now have index reads below their long-run averages, meaning consumer expectations for labour markets are marginally better than average,” Mr Evans said.

The overall index in the December quarter is five per cent above the average for the September quarter, when sentiment was dampened by a slump in consumer spending.

Mr Evans said that while growth in consumer spending likely bottomed out in the September quarter, he believes a sharp lift in spending is “unlikely” given ongoing weak income growth, a low savings rate and high debt levels.

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