From Westpac comes the bible of consumer attitudes today and it settles some of the more fanciful notions abroad last week about what lifted consumers.
― The Westpac–Melbourne Institute Index of Consumer Sentiment jumped 8% in Feb from 93.2 in Jan to 100.7. This is the first month since Feb 2014 that optimists have outnumbered pessimists, albeit only just.
― A surprise 25bp interest rate cut from the RBA, sharply lower petrol prices and surging equity markets helped drive the surprisingly strong gain, more than offsetting a drag from political concerns. These themes showed through strongly in the survey detail.
― Additional questions on mortgage rate expectations show a big shift since Aug with only 40% expecting interest rates to rise over the next 12mths compared to a clear outright majority (63%) back in Aug. This in turn suggests the RBA’s rate cut move gave an added boost to sentiment via its impact on expectations.
― CSI± measure, our modifi ed sentiment indicator that we favour as a guide to actual spending, posted a milder 4.9% rise in Feb but this followed a somewhat stronger 3.6% gain in Jan. Overall, CSI± has recovered from the sharp fall in late 2014 suggesting any associated hit to actual spending is likely to have been brief. CSI± is still only pointing to flat per capita spending, implying total consumption growth around 1.5%yr, a weak pace by historical standards.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.