The chances of a fourth successive interest rate rise have increased after Australian consumers emerged from their annual Christmas-New Year break full of vim and vigour, with confidence hitting new highs, according to two major surveys.
The Westpac/Melbourne Institute survey showed a sharp 5.6 point rise in confidence to 120.1 on its monthly survey today, more than 33% higher than a year ago when confidence had been battered by the financial turmoil and recession in the wake of the Lehman Brothers failure and other financial woes.
And the weekly Roy Morgan survey showed a sharp rise in confidence in its latest survey to the highest level since February 2005. The Morgan poll showed confidence at 128.9 points, up 1.1 points in the latest week and 21.7 points above the level of the same time in January 2009.
Both surveys show that consumers have shrugged off the trio of rate rises from the Reserve Bank in October, November and December.
Ironically this level of rising confidence, taken with solid retail sales for November, good car sales, still strong demand for housing finance and surging overseas travel (shown by the profit upgrades from Webjet and Flight Centre in the past 10 days) have increased the odds of the RBA lifting rates a 4th time in a row at the February 2 meeting of its board.
That would push the cash rate to 4%, if the rise was 0.25%.
Westpac chief economist, Bill Evans, said in a statement with the bank’s confidence survey that its survey had produced "a very strong result".
"The index is seasonally adjusted and therefore takes account of traditional January optimism.
"Nevertheless it is still above its level of last September prior to the Reserve Bank’s record three consecutive rate increases over the three months from October to December."
"The share market also supported confidence with a rise of 4.2 per cent although petrol prices did increase by a solid 4.4 per cent," he said.
With another strong rise in December job ads (shown by the ANZ job ads series) and by the surprise 35,000 extra jobs last month in the ABS Labour Force figures last Thursday, the Australian economy looks like it’s now in a new growth phase where it is responding to fresh demand, rather than just the impact of government stimulation, as was the case for much of 2009, especially the final six months.
December imports rose 7%, according to ABS figures, but much of that was due to higher prices for oil and petroleum based products. Consumption goods fell and capital goods imports rose, while imports of non-monetary gold also jumped.
Also helping consumers feel better was the very positive impact of the stockmarket rebound on their superannuation where the colour of figures in the various reports to be issued in the next couple of months will be black, instead of red, with plus signs instead of minuses in front of the totals (see accompanying story).
"In other convincing evidence that households appear to have comfortably absorbed the higher interest rates, we note that the confidence of those respondents who currently hold a mortgage has reached its highest level since 1994 when we first collected data using categories defined by home ownership," Mr Evans said in the statement
He said that, while these categories of the index were not seasonally adjusted, confidence of respondents with a mortgage was up 16.7% in January compared to the average rise in January of 8.6%.
"Clearly, a major source of relief for households was the absence of a further rate increase," he said.
"With no meeting of the Board of the Reserve Bank in January, the record run of three consecutive monthly increases in interest rates was interrupted."
Mr Evans said it was likely the most important fillip to confidence in the month was further positive good news on employment after the national unemployment rate fell from 5.6% to 5.5% in December.
Westpac believes that unemployment now has peaked.
"Supporting the importance of the jobs market in buoying confidence, we note that, over the course of 2009, the Westpac-Melbourne Institute measure of how households assess their job security has improved substantially," Mr Evans said.
The survey showed four of the five components of the index increased in January.
All components of the index are seasonally adjusted.
Sentiment over family finances compared to a year ago rose by 5.2%, and expectations about family finances over the next 12 months increased by 10.5%, both very positive results.
Expectations of economic conditions over the next 12 months rose by 6.8% while expectations for economic conditions over the next five years fell by 2.1%.
These were similar to the results in the Morgan survey as well.
"Opinions on whether it is a good time to buy a major household item rose by 7.7 per cent," Mr Evans said.
He said that Westpac expects to see another rate hike of 0.25% to be announced by the bank on February 2 with the likelihood of another two increases of a similar size by June.
