Delays in the passing of contentious federal budget measures through parliament appear to have boosted consumer confidence.
The Westpac Melbourne Institute Index of Consumer Sentiment has risen 5.9 per cent in the past three months, taking it to only 1.2 per cent below its pre-budget levels in April.
Westpac chief economist, Bill Evans, said most of the damage done to confidence by the federal budget in May has been repaired.
“Households have also probably been buoyed by resistance in the Senate to many of the unpopular budget measures,” he said.
“It would seem that households are now assuming that some of these measures will eventually be moderated or abandoned.”
The repeal of the carbon tax has also boosted consumer confidence, Evans said.
The consumer sentiment index rose by 3.8 per cent in August to 98.5 points, after hitting a two-year low in May.
The index has stayed below 100 points for five consecutive months, meaning there are more pessimists about the economy than optimists.
AMP chief economist, Shane Oliver, said improving consumer confidence should help boost retail spending in the second half of 2014.
“Overall, the continued recovery in consumer confidence adds to other indicators in suggesting that the fall in real retail sales in the June quarter is likely to be temporary,” he said.
“However, with confidence still low and wages growth staying very weak there is absolutely no pressure from these numbers for the Reserve Bank of Australia to raise interest rates.”
More recent consumer confidence data, from ANZ and Roy Morgan, has shown a fall in sentiment in the past two weeks, amid concerns over global tensions and higher unemployment.
Commonwealth Bank senior economist John Peters said weakness in the jobs markets was a key factor continuing to dampen consumer confidence.
The unemployment rate surprisingly shot up to 6.4 per cent in July, from six per cent the month before.
“The state of the jobs market is one of the key influences on consumer confidence,” he said.
The Westpac-Melbourne Institute unemployment expectations index showed job security fears eased by three per cent in August, but the survey was conducted the week that the July employment data was released.