By Michael Witts, ING DIRECT Treasurer
The Index is at its highest level (111.5) since the inception of this survey, and a very solid increase from the June quarter reading.
This is consistent with other measures of consumer and business sentiment and confidence.
Is this improvement justified by the underlying economic numbers?
In a nutshell yes.
In a little over 12 months the RBA has cut the cash rate by almost 2%. Usually changes in interest rates work their way through the economy with a lag. This can be around 6 to 9 months. Clearly the rate cuts over the past year are starting to have a positive impact.
The current record low interest rates are likely to remain into the first half of 2014.
Despite the recent rise in the exchange rate, largely tied to US debt ceiling related uncertainty, it is still 10% lower than 12 months ago.
This, in combination with the interest rate cuts, is providing momentum to the economy.
House building approvals are up 10% over the year. Although month on month volatility remains the underlying trends is consistent with emerging recovery in that sector.
Likewise, the number of loans for the construction of new homes is sharply higher compared with 12 months ago and after allowing for seasonal trends housing finance approvals increased further in the three months to August, especially in New South Wales.
The labour market remains steady without being spectacular, employment is higher by 100,000 over the past year and the trade-off between the unemployment rate and the participation rate has seen unemployment increase by 30,000.
Notwithstanding the US standoff, more broadly the global economy looks to be entering 2014 with the opportunity to put a large amount of the volatility behind it. Improving growth scenarios are increasingly apparent across a range of regions.
The recent Federal election in Australia effectively brought to a close a campaign that had been underway for a better part of the year. The constant focus on negative aspects of the economy, which in reality were not that bad, especially within a global context, clearly took a significant toll on consumer and business sentiment.
The election of a clear majority government in the lower house removes the uncertainties inherit in a minority government.
The rise in global equity markets has been very strong with US markets at record level, despite the recent budget impasse. The improved tone has been reflected in the domestic share market, with the market at its highest level post the GFC.
Against this background of a broadly supportive and improving economic environment and outlook the finding of the ING Direct wellbeing index suggest that consumers appreciate the improvements and this may ignite a recovering consumer spending and retail sales.