Westpac (ASX:WBC) reports 'extraordinary' Australian consumer confidence

Australia's economic growth is vastly outpacing its counterparts and, according to Westapc (ASX:WBC), our consumer confidence is surging.

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Australia's economic growth is vastly outpacing its wealthy global counterparts, with the economy set to grow at its fastest rate since 2007 this year, and Australian consumer confidence hitting decade-highs.

Westbank Banking Corp (ASX: WBC) has just released its Westpac-Melbourne Institute Index of Consumer Sentiment report, which tracks Australian consumer confidence and spending habits.

It shows consumer confidence increased by 6.2% to 118.8 in April from 111.8 in March, which Westpac's Chief Economist Bill Evans calls "an extraordinary result". 

Australians confident and eager to spend

Evans outlined that Westpac's confidence index is now at its highest level since August 2010 when Australia's post-GFC rebound and mining boom were in full swing.

Expectations for the economy are also up strongly and back near those 2009-10 record levels. The 'economy next 12 months' sub-index is up 10.3% and the 'economy next 5 years' sub-index is up 4.1%.

Westpac's index tracks several sub-indexes that track confidence in various industries and also specify consumer confidence on various spending habits.

The industry breakdown shows those employed in the 'recreational services' and hospitality industries showed very big sentiment gains, up 23% and 14% respectively. There were also big sentiment gains among those working in construction (+17.3%), including tradies (+18.5%) and labourers (+14.6%).

Evans' report also highlights the strong housing market "more generally, is also likely to be boosting confidence." Auction clearance rates are near 80% and dwelling prices have lifted by 5.8% nationally since the beginning of the year.

Westpac's view on potential interest rate rises

Evans also speculated on why the Reserve Bank may be hesitant to raise interest rates, despite Australia's strong economic performance.

When the Index was last at these levels, in August 2010, the Reserve Bank had increased the cash rate by 150 basis points to 4.5% from its GFC low of 3% in September 2009. That sharp increase in rates is likely to have contributed to the Index falling 25% over the following year.

No doubt the Reserve Bank will be aware of that period and continue to tread carefully with the cash rate.

Caution for overly optimistic expectations

While on the surface, Westpac's consumer confidence index is cause for some celebration, Evans also noted areas for caution heading forward.

He noted that confidence in the jobs market appears to have plateaued. Westpac's survey also includes important insights into the shape of the recovery. Housing affordability appears to be weighing on homebuyer sentiment, with house price growth hitting 32-year highs. 

Big-ticket item spending intentions – where the index asks consumers how confident they are in making large household purchases – are not nearly as buoyant as the overall index (down more than 2% against the last quarter).

Motley Fool contributor Lucas Radbourne-Pugh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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