Upbeat Australian consumer sentiment.

Consumer confidence in Australia in March 2007 is strong. According to a March 14, 2007 summary of the most recent consumer confidence survey distributed by the Australian Associated Press (AAP), the overall index of consumer confidence reached a 19 month high in March 2007.

Australian consumer confidence is measured by the Westpac/Melbourne Institute consumer sentiment index, which increased from 111.4 in February 2007 to 115.5 in March 2007. This represents an increase of 3.7 percent.

Westpac/Melbourne's Chief Economist, interviewed for the AAP story, said that the consumer sentiment index was 3.6 percent higher in March 2007 than it was in March 2006. He also said that the index was 10.9 percent higher than the average index reading for all of 2006.

In terms of revealing detail, the AAP said, "The biggest monthly gain in the Westpac/Melbourne Institute survey was a 4.8 per cent rise in buying major household items." A rise in consumer interest in durables is normally taken as a sign of strength in consumer spending.

Another encouraging sign comes from this comment by the AAP: "They [meaning consumers] are not worried about recent volatility on the global equities market and have not walked away from the housing market." This activity in the housing market compliments the consumer sentiment reading in regard to durables.

The AAP reported on a consensus that consumer sentiment was strong because of the stability of interest rates. Rates have been on the rise in Australia recently, but changes have been gradual and apparently easily absorbed by the economy.

Neither have the related recent increases in oil prices made a negative impact on consumer sentiment. The general feeling of the economists quoted for the AAP story was that oil prices will put pressure on inflation, which in turn will probably mean interest rate hikes in the coming months. But the interest rate hikes will continue to be absorbed.

While there is no doubt that higher interest rates will erode purchasing power to a certain extent, and that the stability of gradual rate rises positively affects consumer sentiment, the Australian economy provides a better-and longer lived-reason for consumer optimism.

On March 15, 2007, Bloomberg News distributed a story on its wires saying that Australia's employment situation was particularly favorable. The unemployment rate did rise to 4.6 percent in February 2007 from 4.5 percent in January 2007-but January's rate was an historic 31-year low!

It is, therefore, more likely that Australia's consumers are responding with optimism to the "very fully employed" situation, as the head of the central bank put it, rather than interest rates, which seem somewhat abstract by comparison.

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