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Consumer confidence jump unlikely to spark spending spree

Consumers are feeling more confident this January, but it is not expected to translate into a spending spree.

The Westpac-Melbourne Institute consumer sentiment index rose 1.8 per cent to a four-year high of 105.1 in January.

A reading above 100 indicates optimists outnumber pessimists.

People are less worried about the prospect of rising interest rates and are feeling more positive about the outlook for the economy and the jobs market, according to the survey.

Economists divided on spending outlook

Despite the overall uplift in sentiment, households remain wary about their own financial positions in the near-term.

Views around family finances compared to a year ago declined 1.1 per cent in the month.

Westpac senior economist Matthew Hassan expects weak wages growth and a slowing housing market to dampen the outlook for spending.

"Some of the survey details suggest there's still some lingering weakness, particularly around family finances, that is likely to see consumers still quite restrained," he said.

Retail sales strengthened heading into the end of last year but many economists warned one-off factors, including the launch of the iPhone X and the Black Friday sales, mean spending may have fallen in subsequent months.

Annette Beacher from TD Securities does not share that view and expects the uptick to be more sustained.

"If consumers were so indebted and cash-strapped why did 'Black Friday' sales and cell phone purchases surge?" she wrote.

"Surely such highly discretionary expenditure would be deferred until wages growth picked up."

But Matthew Hassan warned that many consumers have already dipped into their savings.

"We saw household savings rates decline quite sharply over the year to September. That's unlikely to repeat in 2018," he concluded.

Time to buy?

The component of the index that measures whether people think it is a good time to buy a house rose 6.1 per cent in January — the most positive reading since September.

Sentiment among owner-occupiers was previously low due to affordability concerns but has recovered over the past few months.

"It had quite a solid rise this month, but coming from quite a weak starting point," Mr Hassan explained.

Across the states, Victoria and Western Australian experienced the strongest gains, while sentiment among New South Wales buyers remained at weaker levels.

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