Australian Sentiment Index Jumps Most in Eight Months

By Jacob Greber

April 8 (Bloomberg) -- An index of Australian consumer confidence rose by the most in eight months as concerns about the global economy eased amid a surge in stock markets and the government began distributing cash to taxpayers.

The sentiment index gained 8.3 percent in April to 92.7 points from March, when it fell 0.2 percent, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between March 30 and April 5 and released today in Sydney. April was the 15th month that the index was below 100, indicating pessimists outnumber optimists.

Today’s report supports the central bank’s view that record declines in borrowing costs, as well as A$42 billion ($30 billion) in government handouts and infrastructure investment will spur consumer spending that accounts for more than half the economy. Governor Glenn Stevens cut the benchmark interest rate to a 49-year low of 3 percent yesterday.

“This is a surprisingly strong result,” said Bill Evans, chief economist at Westpac Banking Corp. in Sydney. “The stimulus package is likely to be buoying consumers.”

The Australian dollar traded at 70.95 U.S. cents at 10:34 a.m. in Sydney from 70.94 cents just before the report was released. The two-year government bond yield rose 2 basis points to 3.07 percent. A basis point is 0.01 percentage point.

Cash Handouts

Prime Minister Kevin Rudd is trying to boost an economy that unexpectedly shrank in the fourth quarter for the first time in eight years with cash handouts totaling A$12.2 billion, or as much as A$950 to individuals.

Consumers are also being buoyed by share markets, which have risen by around 20 percent in the U.S. and Australia in recent weeks, Evans said.

An index measuring consumers’ expectations for economic conditions over the next 12 months increased 16.9 percent, and opinions on whether now is a good time to buy a major household item gained 3.2 percent.

Still, “it would be premature to argue that the index has passed its lows in this cycle,” Evans added. “Given the disturbing signals from all the leading employment indicators, we are likely to see the index reaching new lows.”

Australian employers probably cut 25,000 jobs last month and the unemployment rate rose to 5.4 percent from 5.2 percent, the highest level in almost four years, according to the median estimate in a Bloomberg survey of economists. The jobs report will be released tomorrow.

Reserve Bank of Australia Governor Stevens reduced the benchmark interest rate by a quarter point to 3 percent yesterday, adding to four percentage points of cuts since September.

“The bank is now likely to remain on hold until around August, when rate cuts will be needed to deal with a more concerning global and domestic economic environment,” Westpac’s Evans said.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net