Australian Consumer Confidence Jumps Most in 22 Years
Australian consumer confidence jumped in June by the most in 22 years after the economy unexpectedly avoided a recession, stoking speculation the central bank has finished cutting interest rates.
The sentiment index rose 12.7 percent from May to 100.1 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between June 1 and June 7. It’s the first time since January 2008 that the index was above 100, indicating optimists outnumber pessimists.
Australia’s currency and stock index extended gains as the jump in confidence reinforced central bank Governor Glenn Stevens’ view the economic growth will begin accelerating later this year. Home-loan approvals rose for a seventh month as the lowest borrowing costs in 49 years and government handouts bolstered demand among first-time buyers, a report showed today.
“Today’s data add to the case for the Reserve Bank to remain on the sidelines,” said Michael Blythe, chief economist at Commonwealth Bank of Australia in Sydney. “A rebound in confidence is an essential precondition for economic recovery.”
Sentiment among Australian businesses jumped in May by the most in almost eight years after the government said it will spend A$22 billion on roads, railways, hospitals and schools, a National Australia Bank Ltd. survey showed yesterday.
Shares Gain
The Australian dollar advanced to 80.34 U.S. cents at 12:18 p.m. in Sydney from 80.17 cents before the consumer confidence index was released. The S&P/ASX 200 stock index climbed 1.6 percent to 3,997.2 as shares of retailer David Jones Ltd. gained 4.4 percent. The two-year bond yield increased 2 basis points to 3.92 percent.
The central bank left the benchmark interest rate at 3 percent last week. The government reported on June 3 that Australia joined China and India as one of the few economies that expanded last quarter.
Gross domestic product rose 0.4 percent in the first quarter from the previous three months as consumer spending and agricultural exports climbed. Economists expected a 0.2 percent contraction, according to a Bloomberg survey.
“Australia’s economy has maintained a relatively steady path throughout this global financial market crisis,” said Clifford Bennett, senior economist at Kinetic Securities in Sydney. The Reserve Bank will “have to raise rates by a quarter-point in December as growth quickly returns to around 3 percent a year.”
Rate Expectations
Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading approved payday advance.
Traders forecast the key interest rate will be 59 basis points higher in a year’s time, the index showed at 12:13 p.m. in Sydney. Late yesterday they tipped 52 basis points of gains and at the start of June, they tipped 3 basis points of cuts.
Governor Stevens and his board cut the benchmark rate by a record 4.25 percentage points between September and April.
A pickup in consumer spending is stoking sales at companies such as JB Hi-Fi Ltd., the best performing retail stock in Australia’s benchmark index this year. Australian retail sales rose 0.3 percent in April from March.
JB Hi-Fi raised its earnings forecast yesterday after opening new stores and boosting sales. It also increased its target for new store openings, with 160 outlets planned compared with its previous forecast of 150.
Four of the five components in Westpac’s confidence index rose. Expectations for economic conditions over the next five years jumped 20.2 percent, and assessments of family finances gained 11.1 percent. A gauge of whether now is the time to buy major household items slipped 1.6 percent.
‘Significant Stimulus’
“This surge in confidence can be seen as a delayed response to the significant stimulus over the last nine months,” said Bill Evans, Westpac’s Sydney-based chief economist. “This is a truly remarkable result.”
The government is embarking on the biggest building program in Australia’s history. Prime Minister Kevin Rudd has also tripled a grant to first-time buyers of new homes to A$21,000 ($16,900) last year and in May said he would extend the payments into the second half of 2009.
The number of loans granted to build or buy homes and apartments climbed 0.9 percent to 60,395 from March, when they advanced a revised 4.8 percent, the statistics bureau said in Sydney today.
First-home buyers accounted for 28 percent of dwellings that were financed in April, up 27.3 percent in March and 16.8 percent a year earlier, the report showed.
“The Reserve Bank will take some solace from the strong signs of improvement in both business and consumer sentiment,” said Ben Dinte, an economist at Macquarie Group Ltd. in Sydney. “A key concern for policymakers over the last six months has been the so-called crisis of confidence gripping Australia’s businesses and households.”