What Is the Westpac Consumer Confidence Index?

The Westpac Consumer Confidence Index is an index measuring the level of consumer confidence in Australia. IT is produced by the Melbourne Institute and published by the Westpac group. The Index is used to measure household economic expectations by averaging five different indexes that measure separate aspects of consumer sentiment and fiscal health.

The index is also called the Westpac Melbourne Institute Consumer Sentiment Index.

Key Takeaways

  • The Westpac Consumer Confidence Index, also known as the Consumer Sentiment Index, is an indicator of Australian consumer perceptions of current and future economic conditions. 
  • The Index includes survey data on consumers' household finances, expectations regarding the economy, and impressions of buying conditions for major household items.
  • The Index is watched and used by economic policymakers, businesses, and investors to help plan economic decisions in Australia.

Understanding the Westpac Consumer Confidence Index

To measure changes in the level of consumer confidence in economic activity, researchers conduct a telephone survey of a random sample of 1,200 Australian adults. Australia's Consumer Confidence Index uses five indices based on the survey questions to reflect consumers' evaluations of:

  • Household financial situation currently vs. one year ago
  • Expected household financial situation for the coming year 
  • Anticipated economic conditions over the coming year 
  • Anticipated economic conditions over the next five years
  • Buying conditions for major household items

Consumers are also surveyed on attitudes toward specific buying conditions for cars and dwellings, their preferred place for savings, and their economic news recall. Indexes for each of these are calculated and combined to determine the overall Consumer Confidence Index. Regional indexes are similarly produced for New South Wales, Victoria, Queensland, Western Australia, and South Australia.

The Westpac Consumer Confidence Index measures household views on holiday spending conditions in Australia (in each November index), their views on economic policies such as taxation, their views on where they would invest at the present time, and their views on economic news like inflation and employment numbers. The Westpac Group publishes numerous economic reports intended to measure Australia's economic climate, including retail sales figures, GDP figures, and interest rate expectations.

Applying the Westpac Consumer Confidence Index

Similar to the U.S. Consumer Confidence Index, the Westpac Consumer Confidence Index is a useful barometer measuring the degree of optimism on the state of the Australian economy, its primary gauge captures consumers sentiment as expressed through their levels of savings and spending. As a point of reference, the Westpac Consumer Confidence Index's methodology is similar to the University of Michigan Consumer Sentiment Index, which is conducted by the University of Michigan's Institute for Social Research.

Australian business and investors can use the Index to help plan for the overall level of consumer demand in the Australian economy in future months and quarters. They can glean valuable economic sentiment useful in anticipating employment needs, product pricing, and investment planning. Australian policymakers and the Reserve Bank of Australia (RBA), Australian's central bank, can use the Confidence Index to help form monetary and fiscal policy.

Generally speaking, a high reading is seen as positive (or bullish) for the Australian economy and the Australian dollar (AUD), whereas a low reading reflects negative (or bearish) outlook. As a leading indicator, it can give advance warning of major economic trends and turning points. For example, the Index was at an all time high of 123.94 Index Points in May of 2007 before declining steeply over the following year as the global economy plummeted into the Great Recession.