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Monday, November 16, 2009

Consumers restrained ahead of Christmas

AAP

Christmas stockings may be a bit skinnier this year despite a high level of consumer confidence, and an economy that is outperforming other advanced countries.

Treasurer Wayne Swan concedes that the country still faces many challenges, such as rising unemployment, but his government will be working just as hard to ensure an enduring economic recovery.

Still, one financial market strategist, who has a nose for predicting official interest rate decisions correctly, does not believe the Reserve Bank of Australia (RBA) will lift the cash rate again in December.

Last week's monthly Westpac-Melbourne Institute consumer sentiment survey found that while confidence fell 2.5 per cent in November, on the back of rising interest rates, it remained 38.3 per cent higher than a year ago with optimists still clearly outweighing pessimists.

However, additional responses to the survey released on Monday showed that just 14.2 per cent of respondents intend to spend more on gifts than they did last Christmas.

"Christmas spending intentions are at odds with buoyant levels of consumer sentiment," Westpac senior economist Matthew Hassan said in releasing the findings.

Most consumers expect to either hold steady or reduce spending on gifts this year compared to last year.

Just under 35 per cent said they planned to spend less, while about half said they would spend around the same.

Mr Hassan said this was likely due to the federal government's $8.7 billion in cash handouts this time last year as part of it first economic stimulus package.

"There may also be a regular bias towards restraint heading into Christmas that eases as the season gets underway."

About 40 per cent of households plan to spend more than $500 on gifts this year, while a quarter expect to spend $300 to $500, and just over 30 per cent plan to spend less that $300.

Overall, households plan to spend an average of $317 on gifts in 2009, pointing to a total Christmas spend of $2.5 billion.

Mr Swan said the government's stimulus strategy had helped the economy outperform other advanced economies.

"The government is working just as hard on the post-crisis economy as we did surviving the crisis itself," Mr Swan told parliament.

"We did the hard yards to position us as the strongest performing advanced economy, and we'll do the hard yards to turn this into something much more enduring. In many ways we are just beginning."

Macquarie Bank interest rate strategist Rory Robertson said the economy is "doing OK, not great".

He did not think that last week's official labour force report that showed an unexpected 24,500 more people in employment was necessarily a trigger for the RBA to raise the cash rate for an unprecedented third month in a row in December.

"My best guess today is that the RBA will sit on its hands in December, take a break over summer and then hike several times in the first half of 2010, if the local economy continues to strengthen," he said.

The RBA will on Tuesday release the minutes of this month's board meeting, where it lifted the cash rate to 3.5 per cent from 3.25 per cent, on Tuesday.

Mr Robertson said the minutes will shed some further light on the near-term policy outlook.

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