Consumer confidence proves strong

The Westpac Melbourne Institute Index of Consumer Sentiment measures the level of confidence householders feel in the state of the economy and their willingness to undertake purchases over a defined period.

It is undertaken by telephone survey and responses to various questions are aggregated to create an index.

In July 1999 the index edged up to 113.9 from 113.8 in June 1999. Whilst this rise is not signifi-cant, it is a consolidation of the index at a level that is 11.8 per cent above that of a year ago.

In fact, over the first seven months of this calendar year the index has hovered at levels not seen since 1994.

The components of the index measuring expected future economic conditions displayed strong rises. The component relating to expected economic conditions over the next year surged by 10.3 per cent to be up 45.3 per cent on its level a year ago.

It also appears that consumers are more confident of the longer-term economic outlook.

The expected economic conditions component relating to the five year period has risen by 16.5 per cent over the last twelve months.

An anomalous result that partially offsets the strong rise in these components related to householders’ views as to whether this was a good time to be buying a major household item.

This component fell 12.4 per cent in the last twelve months. In part, this can be attributed to a number of householders delaying purchases until the introduction of the GST.

A number of electrical items and motor vehicles are expected to fall in value with the abolition of the wholesale sales tax and imposition of the GST.

The overall rise in consumer confidence since late 1998 has been a key factor in the strong lift in consumer spending we have seen this year.

If these levels are maintained over the next few surveys the Australian economy is due for another strong growth year this year.