RTTNews - Confidence among Australian consumers rose to its highest level in 19 months in July, the latest Westpac Melbourne Institute Consumer Sentiment survey showed Wednesday.

The consumer sentiment index rose 9.3% in July to 109.4 from 100.1 in the preceding month. This is the highest level of the index since December 2007, rising 38.5% from its level a year ago and decisively outnumbering pessimists for the first time in 19 months, Westpac said. Moreover, it was the largest two-month gain in the index since the survey began in 1975, rising 23.2% in the last two months.

Westpac Chief Economist Bill Evans said the improvement came despite no boost from traditional drivers of confidence. Petrol prices increased, the Reserve Bank of Australia kept the interest rates steady in June, the rise in Australian dollar stopped, the equity market fell since the last survey and the global share market also declined.

In July, four of the five sub indicators increased. Respondents were more positive about the economic outlook, with the index on economic conditions for the next one year and next five years showing increases. Consumers' assessment about family finances over the next 12 months improved, as also their sentiment regarding whether it was a good time to buy major household items. However, consumers' view about their own finances declined.

Evans said the first quarter GDP figures provided a relief to households and could have been the supporting reason behind July's result. Secondly, the financial stimulus given by the government, particularly the second round of handouts, helped increase retail sales and provided a surge in confidence.

Further, the economist said the unexpected resilience of the employment figures played a role, with the jobless rate remaining steady over the last two months. With employers' efforts to retain workers by switching from full time to part time, workers were feeling more secure in their jobs. The measure of job security rose 12% from its low in February, though it remained 20% lower than last year.

Moreover, the surge in confidence appeared to have spilled over into the housing market, with 52% of respondents expecting house prices to rise over the next one year compared to only 32% in May.

But, despite the improved outlook for consumer spending, Westpac still expects the second quarter GDP to be negative, reviving the recessionary concerns. Further, commenting on the RBA's latest decision to hold the key interest rate steady at its 49-year low of 3%, Westpac said, clearly it will be some months before a case can possibly be made to deliver on the easing bias. Moreover, Evans said the probability of the central bank acting on the bias has diminished markedly.

Meanwhile, the Australian Bureau of Statistics said Wednesday that the number of loans issued for new housing rose a seasonally adjusted 2.2% month-on-month in May to 63,855. Housing finance commitments were valued at A$17.05 billion in the month.

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