There has been a positive reaction to the federal budget with consumer confidence shooting up to its highest level since January.
The Westpac/Melbourne Institute index showed consumer sentiment rose by 6.4 per cent in May to 102.4 points - the above-100 result means there are more optimists about the economy than pessimists.
The survey was conducted in the days following the release of the federal budget on May 11.
Westpac chief economist Bill Evans said while the Reserve Bank's rate cut on May 5 helped, the budget was a larger factor for the surge in consumer confidence.
He said the responses to the question relating to the expected impact of the budget on family finances was the most positive since 2010.
"The impact of the rate cut is likely to have been dominated by the response to the budget," he said.
"For example, the confidence of those respondents who hold a mortgage increased by a solid 4.8 per cent although that rise was somewhat less than the overall lift for all respondents of 6.4 per cent," he said.
Mr Evans said the Westpac consumer confidence survey has fallen in May six out of the last 10 years with the budget usually the reason for the fall.
"The surge in the index this year represents the first time we have had a strong result in May since 2007," he said.
The response to the 2015/16 budget is in stark contract to the previous years' budget which included harsh spending cuts, which dealt a blow to consumer confidence.
Australian National Retailers' Association chief executive Anna McPhee said the budget bounce in confidence should result in more consumer spending.
"The retail sector is encouraged by the bounce in sentiment after experiencing slowed retail activity and wavering confidence for some time after last year's budget," she said.
"A boost in confidence, if translated into increased retail activity, will support the 1.25 million jobs in the sector and support a larger contribution to growing the domestic economy to drive growth."
CBA senior economist John Peters agrees the lift in consumer confidence will be good news for the economy.
"The latest jump in consumer sentiment brings hope that consumer and household spending may pick up from here and in turn bring forth more investment and spending from the non-mining business sectors of the economy," he said.
"Such a lift in non-mining business investment is imperative to fill the large black hole in business investment left since the conclusion of the mining investment boom of the past decade."
Mr Peters said the boost in confidence bolsters his view that the RBA will be very reluctant to move the cash rate below its current level of two per cent.
"The hurdle for another rate cut will be much higher than May's move - but another easing policy cannot be categorically ruled out," he said.
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