Waking Up Too Late

Labor voters' confidence starts to sink
By David Uren
January 17, 2008 12:00pm

Consumer confidence falling
Shares down, rates heading up
Labor voters' optimism slipping

LABOR voters have lost their rose-tinted glasses, their confidence in the economic outlook shaken by recent interest rate rises and diving share markets.

The latest survey of consumer confidence conducted by the Melbourne Institute shows the optimism of Labor voters slumped 11.5 per cent last month, nearly double the 5.9 per cent fall among Coalition voters.

Confidence in the economy overall has dropped 8.3 per cent with the index standing at 103.1points, its lowest level since November 1996, when it dropped to 95 points following an interest rate increase.

A measure of 100 points shows equal numbers of optimists and pessimists about the economy.

Westpac chief economist Bill Evans said the survey marked the first sign that rising rates and a weaker world economy were having an effect on consumers.

"I think we have to assume there will be a softening of the consumer economy, given the global environment," he said.

Most economic indicators show the economy is booming, or at least was until the end of last year. Housing finance figures released yesterday, for example, reveal that the last official interest rate rise in November did not dent demand for housing finance.

The number of loan approvals rose 1.5 per cent in the month to stand 8.4 per cent higher than a year ago.

A survey of housing prices by private consultancy Residex shows property prices are on the boil, rising by 11 per cent nationally during last year.

Melbourne prices soared 23.5 per cent, followed by Brisbane (18.9per cent), Adelaide (17.8 per cent), Hobart (11.2 per cent), Sydney (9 per cent) and Perth (2.6per cent).

Residex chief executive John Edwards said the past two rate rises had failed to puncture the price boom, with prices rising 3.2per cent in the past three months, pushing the average house price to $391,000.

Economists expect employment figures for December, to be released today, will provide further evidence of rapid economic growth, with most predicting at least 20,000 new jobs created.

Mr Evans said he did not expect the fall in confidence would be enough to stop the Reserve Bank from raising rates at its next meeting in February in its effort to slow the economy.

He noted that the biggest falls were among renters and low-income people, who might have economic reasons for rising concern about the outlook, and might also be more likely to be Labor voters.

The December survey, taken in the wake of the election, showed a huge 15.6 per cent leap in confidence among Labor voters and an even larger 16.2 per cent fall among Coalition supporters.

Labor voters have come back to earth, recording a standing of 107 on the Melbourne Institute index, while Coalition voters stood at 98, indicating a clear majority of Coalition voters are pessimistic about the economic outlook.

The housing finance figures show that rising interest rates have produced a big jump in home loan refinancing, as people sought to switch their loans from variable to fixed rates.

There was also a 13.7 fall in borrowing for investment housing by developers and investment companies, however the rate rises have had no effect on purchases of investment housing by individuals, which have been unchanged over the past three months.

http://www.news.com.au/story/0,23599,23063821-421,00.html

Related news on what the Labor government in the UK has done and continues to do and what to expect in Australia now with both state and federal Labor parties in power.

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