Consumer confidence rises

Interest rate cuts and rising stock markets and house prices see confidence rise

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Consumer confidence has surged to its highest level in two years after rising for the third time this year.

The Westpac-Melbourne Institute Index of consumer confidence rose 2% in March to 110.5, following a 7.7% rise in February. A reading over 100 indicates optimism and has held for five straight months.

Improved conditions in the world economies, a rising stock market and low interest rates appear to be contributing to household confidence. The Reserve Bank of Australia has cut the official cash rate by 175 basis points since November 2011, equal to its post-GFC low, and finally they appear to be having an effect.

We’ve already seen signs of rising confidence in our consumer discretionary stocks like Harvey Norman Holdings (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH), which have reported rising sales after months of declining revenues. Fashion retailers like Speciality Fashion (ASX: SFH) and Country Road (ASX: CTY) have also seen strong rises in sales in recent times.

Australian Bureau of Statistics data out today also show house prices surged in the last quarter of 2012, with the median house price rising by 3.8%, sending a clear signal that the record low interest rates are starting to fuel a recovery in long-suffering housing sector. When people see the value of their houses rising, they regain a modicum of confidence. Add in rising stock markets, and the impact that has on consumer’s superannuation, and people become more confident of spending.

The Foolish bottom line

More good news for consumers and Australian businesses alike. However, Westpac economist Bill Evans has suggested that concerns over the job market may still be lingering and that we would need to see an improvement in job numbers to further raise consumer confidence.

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