Consumer Sentiment

Consumer sentiment is the quantitative method of obtaining an idea of the accumulated health of the economy, from the consumer's point of view. This is achieved via assessing an individual's thoughts on the health of the economy in the short and long term and thus their outlooks for their own personal financial stability. Therefore, we can say that this is inversely related to unemployment expectations because, since unemployment is characterised by negative economic growth, worsening outlooks for the individual's financial health and a lack of optimism for overall future economic growth, it can thus be stated that a low level of consumer sentiment leads to a higher level of unemployment expectations and vice versa.

Business confidence directly impacts on to business conditions in how if buyers think the economy is going to experience a downturn in economic growth (decline in consumer confidence), then these consumers will stop spending and start saving as a result of pessimism within the economy, thus reducing the total output of the economy as leakages are greater than injections. On the other hand, if consumer confidence was to increase (such as an improved outlook on economic stability and reduced interest rates) then this would ultimately result in increased spending in the economy and less saving and thus business conditions will improve in correlation to an improvement in GDP (ceteris paribus) as injections are greater than leakages. So, consumer behaviour directly impacts on the business conditions for firms in the Australian economy.

The relationship between consumer sentiment, business confidence and the unemployment rate can be summarised as follows:

When consumer sentiment rises, this results in a decrease in unemployment expectations which leads to an increase in business confidence and thus an increase in business conditions ( as outlined above). This ultimately leads to a decrease in unemployment. So, consumer sentiment and business confidence are positively related while the unemployment rate is inversely related to the other two.

↑ Consumer sentiment = ↑ unemployment expectations = ↑ business confidence = ↑ business conditions = ↓ unemployment

The resource sector and the primary industry sector make up the majority of Australia's exports market and thus are attributed to being the major successor of our recent growth. It is also to reason for our two speed economy. Currently, iron ore is accounting for one-fifth of Australia's exports, and thus the greater use of shorter term pricing has had beneficial effects on the terms of trade. In general, the spot price for iron ore has tended to move in line with developments in Chinese industrial production and steel production, although disruptions to supply can also be important. Hence, changed in the outlook for Chinese growth and steel demand