Australian October Consumer Confidence Jumps 1.7%

By Jacob Greber

Oct. 14 (Bloomberg) -- Australian consumer confidence jumped to the highest level in more than two years as rising employment and share prices buoyed sentiment after the central bank raised interest rates last week.

The sentiment index gained 1.7 percent to 121.4 points in October, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Oct. 5 and Oct. 11 and released today in Sydney.

A surge in consumer confidence since May, which has driven up retail sales, home building and mortgage lending, prompted central bank Governor Glenn Stevens to raise the benchmark lending rate on Oct. 6 by a quarter percentage point to 3.25 percent and signal more increases. An Oct. 8 report showing the nation’s jobless rate unexpectedly fell as companies hired full- time workers boosted confidence, Westpac said.

“This rise is significant since the survey follows the Reserve Bank’s decision,” said Bill Evans, chief economist at Westpac Bank in Sydney. It also mirrors the last “tightening cycle, which began in May 2002,” and resulted in “sentiment being resilient to rises while rates remained very low.

“It seems unlikely that the next quarter-point increase in the mortgage rate in November will have any marked impact on sentiment.”

The Australian dollar rose to 90.74 U.S. cents at 11:13 a.m. in Sydney from 90.57 cents just before the report was released. The two-year government bond yield slipped 1 basis point to 4.56 percent. A basis point is 0.01 percentage point.

Stocks Gain

Australia’s benchmark S&P/ASX 200 Index of stocks extended gains, and was up 0.3 percent to 4,798 as at 10:49 a.m. in Sydney. It has surged 29 percent this year. Discount electronics retailer JB Hi-Fi Ltd. rose 1.2 percent to A$18.73, extending its rally this year to 93 percent.

Today’s report also supports Governor Stevens’ view that Australia’s economic growth will return to its trend pace of around 3 percent next year, boosted by A$42 billion ($38 billion) in government infrastructure spending and cash handouts to households.

“The board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy,” Stevens said on Oct. 6 after becoming the first Group of 20 central banker to raise interest rates.

A gauge of consumer sentiment on how the economy is faring now rose to the highest level since the Westpac survey was first produced in 1975.

Retail Sales

Recent reports show retail sales climbed 0.9 percent in August from July and approvals to build private houses increased 3.1 percent, the eighth consecutive month of gains. Bank lending rose 0.1 percent and loans to consumers buying houses jumped 0.6 percent.

JB Hi-Fi Ltd. today affirmed its forecast for annual sales of A$2.8 billion ($2.6 billion) after growth from stores open at least a year accelerated.

“While the economic outlook remains unclear, we are encouraged by recent signs the Australian economy and consumers are feeling more confident than this time last year,” Chief Executive Officer Richard Uechtritz told JB Hi-Fi’s annual general meeting in Melbourne.

Investors have a 100 percent expectation Stevens will raise the overnight cash rate target on Nov. 3 by another quarter point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10 a.m.

Signs that Australia’s economy, which skirted the global recession, is strengthening include a report published on Oct. 8 showing the jobless rate fell in September for the first time in five months as employment unexpectedly surged.

Economic Outlook

“The resilience of the labor market has also been buoying sentiment,” Evans said. The jobless rate’s drop last month to 5.7 percent from 5.8 percent “strengthened householders’ convictions that their jobs are safe.”

While confidence about the outlook for economic conditions over the next 12 months rose 5.7 percent, expectations on the five-year outlook dropped 2.6 percent, today’s report showed.

A measure of consumer confidence on whether now is a good time to purchase a house slipped 11 percent, the lowest level since November 2008.

“This raises some doubt about the extent to which the upbeat mood feeds through to actual spending,” Evans said. “Being optimistic about the future but still somewhat constrained financially may mean consumers remain more cautious.”

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