Australia's consumer confidence hit 2-year high

Index jumped 7.7% in February.

In a release, the Westpac Melbourne Institute  announced that Australia's Index of Consumer Sentiment rose 7.7% in February from 100.6 in January to 108.3 in February. 

Westpac's Chief Economist, Bill Evans, commented, "This is the strongest sentiment  reading since December 2010 and is the biggest monthly gain since September 2011. It  follows an extended period in which sentiment has disappointed, posting at best ‘neutral’ readings despite a substantial 175bp reduction in interest rates since October 2011.

The more positive February reading suggests lower interest rates may finally be starting to gain more traction with the consumer. That said, confidence is still well below the levels recorded during the last easing cycle in 2008-09 which saw sustained readings of around 120. 

“February’s lift in sentiment is despite fairly mixed influences in the month. The Reserve Bank left interest rates unchanged at its February meeting but signalled it was prepared to lower rates further if necessary.

Housing markets continued to show signs of recovery although not a particularly vigorous one. Surprisingly weak retail sales and dwelling approvals data also suggest a weak finish to 2012.

Official jobs data in the survey week showed the unemployment rate continuing to hold at 5.4% in January but much of the detail of the report was again soft.

“Sentiment may have been buoyed by a strong start to the year for financial markets. The ASX rose 4.8% between the January and February and surveys and is up 13.8% from its mid-November low. News from offshore has also been broadly supportive.

“Consumers had more mixed opinions on their finances. The sub-index tracking assessments of "family finances vs a year ago" posted a solid 7.3% rise but remains at a weak overall level while the sub-index tracking forward views on "family finances over the next 12 months" was only marginally higher (+1.4%).

Family finances have been a major weak spot for confidence over the last two year with persistently negative readings well below long run averages. 

“Consumer views on “time to buy a major household item” offered a more encouraging sign for Australia’s retailers. This sub-index rose 5.5% and is now at the highest level since October 2010. 

“Consumers also remain very positive on house and car purchases. The index tracking views on "time to buy a dwelling" edged 3.3% lower in February but was coming from a very high starting point. Similarly, the index on “time to buy a vehicle” was down 4.2% in the month but remains well above its long run average. How much this is a reflection of improved affordability versus a firm intention to buy remains unclear.