Despite an expected pullback, Westpac’s consumer sentiment index is now at its highest level since the mining boom and post-GFC rebound of 2010 despite concerns around vaccine roll-out and the unwinding of stimulus.
“Clearly, confidence would have been buoyed by positive news around the labour market. Job vacancies were reported to be 27 per cent above the pre-COVID level in February last year while the February labour force update showed the unemployment rate had fallen from 6.3 per cent to 5.8 per cent with employment increasing by a stunning 89,000,” wrote Westpac chief economist Bill Evans.
The survey was conducted following the unwinding of JobKeeper, but “initial fears that this and associated job losses would undermine confidence have proved unfounded”. Meanwhile, Mr Evans anticipates that the RBA will learn from its experience during the GFC and “tread carefully” with interest rates.
“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 per cent from its GFC low of 3 per cent in September 2009. That sharp increase in rates is likely to have contributed to the Index falling 25 per cent over the following year,” Mr Evans wrote.
The Morrison government is counting on a consumer-driven recovery to propel the Australian economy out of its COVID-19 doldrums, with $200 billion in pent-up saving sheets expected to be unleashed as health restrictions are eased and borders reopened.
“That money is now being spent. We’ve seen a big jump in household consumption, we saw strong retail numbers for the end of last year and we know that the economic recovery is well underway, with 85 per cent of the 1.3 million Australians who either lost their jobs or saw their working hours reduced to zero at the start of the pandemic now back at work,” Treasurer Josh Frydenberg said in January.
