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Consumers are growing more confident that the worst of Australia’s economic downturn is over and are upbeat about the future, even though their paypackets may be a little lighter.

New data shows that households are at their happiest in almost two years, and their expectations for economic conditions over the next five are at record levels.

“The Australian economy has its mojo back,” Commonwealth Securities (CommSec) chief economist Craig James said.

“While consumers and businesses in other parts of the globe are despondent, Australians are almost euphoric about their finances and the outlook for the economy.”

Federal Treasurer Wayne Swan welcomed the further 3.7 per cent gain in the August reading of the Westpac-Melbourne Institute consumer sentiment index, released on Wednesday.

Confidence has risen by 27.8 per cent since May, the biggest three-month gain since the survey began in 1975 and outpacing by a wide margin comparable surges after the early 1980s and early 1990s recessions.

“The government certainly welcomes this substantial lift in confidence and, of course, the impact it has had on our prospects for recovery,” Mr Swan told parliament.

“It’s a heartening sign that despite the massive global challenges we all face, Australians are pulling together and looking to the future with confidence.”

He said confidence had been helped by the government’s fiscal stimulus packages which lifted retail spending and provided support to the housing market.

Westpac senior economist Matthew Hassan noted recent data pointing to a 4.2 per cent increase in house prices in the June quarter and the unemployment rate stabilising at 5.8 per cent in July.

“These two pieces of news helped to alleviate two of the biggest sources of consumer anxiety over the last year: fear of losing money on their biggest asset – the family home – and fear of losing their jobs,” Mr Hassan said.

Surprisingly, the consumer survey showed no impact from the Reserve Bank of Australia (RBA) ditching the possibility of a further cut in the official interest rate and indicating the next move will be up.

Still, the threat of commercial banks independently lifting their lending rates remains.

Commonwealth Bank of Australia boss Ralph Norris on Wednesday said the country’s biggest home loan lender would adjust mortgage rates as necessary, based on the bank’s funding costs.

“I don’t think there’s any doubt that we will continue to reprice where necessary,” Mr Norris told analysts in a briefing.

“We’ve got to act on a commercial basis and certainly what is right for the business, and if we need to reprice, we will reprice.”

Mr Norris’ comments came after his bank reported a net profit of $4.723 billion in the 12 months to June 30, a modest one per cent fall from the previous year.

Other data released on Wednesday showed annual wages growth had slowed to 3.8 per cent in the year to June, its weakest pace in nearly three years, with private-sector wage growth slipping to 3.5 per cent.

JP Morgan economist Helen Kevans said as labour market conditions had not deteriorated as rapidly as anticipated at the start of the year, wage growth probably would slow only modestly.

“That said, household incomes will suffer due to the sharp fall in the number of hours being worked,” she said.

“The decline in the numbers of hours worked has shaved around $80 per month off average household incomes.”