Consumer sentiment lifted by 1.9 per cent in November, on the back of improved house prices, according to the Westpac-Melbourne Institute Index of Consumer Sentiment.
After a modest fall last month, Westpac chief economist Bill Evans said it was particularly encouraging to see the index bounce back near to the levels seen after it surged 4.7 per cent following September’s federal election.
The survey was conducted in a week when interest rates were kept on hold and the unemployment rate was reported to be steady at 5.7 per cent.
Mr Evans highlighted strong housing data as the key contributor to the lift in consumer sentiment.
“Importantly, house prices were reported to have risen by 1.9 per cent in the September quarter, with prices in Sydney rising by 3.6 per cent to be up by 11.4 per cent for the year,” he said.
“Not surprisingly, the confidence of respondents who wholly own their house was boosted by 6.1 per cent whereas those folks who are renting registered a drop in confidence of 2.8 per cent,” he said.
Mr Evans said the impact of house prices on sentiment was particularly evident when looking at state results, with greater improvements in sentiment recorded in the states with the strongest house value growth.
Indexes were up 7.7 per cent in NSW and 3.2 per cent in Western Australia but rose only 0.9 per cent in Victoria and fell by 4.2 per cent in Queensland and 8.3 per cent in South Australia.
While noting that the improvement in consumer sentiment is good news for the economy, Mr Evans said the Reserve Banks’s recent decision to lower its growth forecast for 2014 from 3 per cent to a below-trend 2.5 per cent was concerning.
Given this, Mr Evans said the door is open for further rate cuts but predicted no movement until early next year.
“For our part, we believe the prudent decision would be to ease rates further but not before more data is available,” he said.
“That rules out the December meeting and could make even February doubtful, although, at this stage, we think the best policy response will be to cut in February.”