Consumer sentiment lifts 4.7% in June with house buying sentiment still elevated: Westpac index

Consumer sentiment rebounded in June following sharp falls in April and May, with house-buying intentions still very strong.

The Westpac Melbourne Institute Index of Consumer Sentiment rose 4.7% in June from 97.6 in May to 102.2 taking the index back over the 100 level indicating that optimists now just outnumber pessimists.

The results were based on a survey of 1,200 Australians aged over 18 conducted in the week from 3 June to 9 June 2013 - when the RBA left the cash rate unchanged at 2.75%.

Despite the rebound in June, consumer confidence still remains 8.2% lower than its peak early in the year.

There was only a small 0.4% rise in the ‘time to buy a dwelling’ sub-index in June but it remains at an elevated level of 143.3, up 12% over the past year and well above the long-term average of 123.1.

It also has the highest reading of the five sub-indexes.

“Clearly consumers see this as an opportune time to make major purchases or enter the housing market, likely reflecting the low cost of finance and comparatively good affordability,” says Westpac senior economist Matthew Hassan.

“However concerns about the economic outlook are likely discouraging many buyers from going ahead with actual purchase decisions,” he added.

Hassan notes that all components of the index recorded some improvement between May and June with the strongest gains around family finances.

The sub-index tracking  assessments of ‘family finances vs a year ago’ rose 8.5%, more than reversing the 8% drop in May while the sub-index tracking expectations for ‘family finances over the next 12 months’ rose 5.3%’.

“It appears that some of the factors behind the sharp drop in sentiment in May were temporary,” says Hassan.

“In particular, concerns stemming from the Federal Budget may have eased somewhat in June.

“However, a deterioration in consumer sentiment around prospects for the Australian economy, which has been a key underlying theme over the last three months, remains apparent,” he added.

The sub-index tracking expectations for ‘economic conditions over the next 12 months’ was up 3.8% after a heavy 13.8% fall in May; and the sub-index tracking expectations for ‘economic conditions over the next five years’ up just 3.2%.

"However, both remain sub-100 indicating a pessimist forward view on the economy," says Hassan.

“These fears [about the economy] would have been underscored by the weak first quarter national accounts data, a sharp sell-off in the sharemarket (down 7% between the May and June surveys) and a slide in the Australian dollar (down 4¢ vs the US dollar between the two surveys), " he says.