Despite a small improvement in consumer confidence at the end of 2011, employment prospects are likely to prompt further interest rate cuts in the near future.
The two consecutive federal interest rate cuts have shown a small improvement in consumer confidence, but there is still ground to recover. The Westpac-Melbourne Institute index of consumer sentiment registered a 2.4% rise in January, from 94.7 to 97.1, after plummeting by 8.3% in December.
"This is a somewhat disappointing result", said Westpac chief economist Dr. Bill Evans. "The index is still slightly below the level which it registered before the first rate cut.
"In effect, at this stage, the rate cuts have been unable to raise consumer confidence."
Concerns about the European debt crisis affecting the Australian economy have continued to infiltrate consumer confidence, despite the Reserve Bank’s cuts in November and December.
Banks have also warned that the rising costs of funding could prevent them passing on further interest rate cuts in full, and banking sector jobs are set to go. ANZ's announcement of at least 130 job cuts is expected to precede much larger job losses in the sector as banks seek to maintain their profitability.
The retail industry is also expected to shed jobs this year as consumers continue to spend more online on their credit cards.
To Dr. Evans, the interest rate cuts had a muted effect but probably prevented sentiment from falling much lower.
"Given ongoing financial turmoil in Europe; a flat housing market and further weakness in the labour market sentiment is likely to have been lower without the rate cuts," he noted.
Employment figures, along with new inflation figures, are likely to drive the case for further interest rate cuts when the Reserve Bank board meets for the first time in 2012 next month.
The ANZ job advertising index, it has been noted, saw the number of adverts fall by 0.9% in December 2011, which marks a fall of 2.6% on the previous December.
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Ashley King
