Confidence levels in the Australian economy have lurched downwards in a rather worrying fashion with both consumers and businesses losing heart this month.

But figures released this morning recorded a surge in new housing finance in December as the increased first home buyers grants for new and existing homes filtered through the economy. In fact, the first home buyer share of housing finance hit a six-year high in December as the raised incentive kicked in.

The Australian Bureau of Statistics said that in seasonally adjusted terms, the total value of dwelling finance commitments, excluding alterations and additions, rose 5.9% from November to December with owner-occupied housing commitments increasing 7.1%.

That will go some way to offsetting the gloom from the latest Westpac-Melbourne Institute survey of consumer confidence which dropped again this month, despite a rate cut and government spending packages.

Yesterday, the National Australia Bank survey of business confidence reported a slump in the corporate sector to a record low, with retailing, mining and manufacturing leading the way down.

On Monday, the ANZ jobs figure for January was down for a ninth month in a row, yet newspaper job ads surprisingly rose and internet job ads remained weak. The overall fall was the smallest since October, but the indicator was still down.

The NAB saw confidence among businesses large and small reverse December’s gains and drop to a record low in January, with the outlook for employment and forward orders hitting recessionary levels.

Today, the monthly survey from Westpac and the Melbourne Institute showed a slump in confidence levels among the country’s consumers, despite the spending from the December stimulus and talk about a new $42 billion package from Canberra.

The index declined 4.6% to 85.8 points, in a survey of 1,200 consumers conducted last week.

Westpac’s chief economist Bill Evans said in a statement the survey result “represents a serious challenge for policy” at the central bank.

“Logically it points to consumers saving any excess income”, rather than boosting spending.

It’s a well-known stage in a recession where consumers, fearful for their jobs and the future, start saving. Our savings rate has been rising since the start of 2008 and will go on rising for as long as there is uncertainty. But it does mean that the time when consumers start spending again is advanced and it does mean that community savings are rising and in itself, that’s a good thing.

Tomorrow we will find out if unemployment has risen from the two year high of 4.5% in December.

Peter Fray

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