Business confidence down and falling, consumer confidence up and buoyed by rate cuts and lower prices: once again we are seeing an economy where two major groups of participants are taking divergent views.

It happened earlier in the year as consumer confidence was crushed by the rise of petrol prices and high interest rates, but business confidence held up as a whole, supported by continuing demand for resources, even though home building and retailing were weak.

The NAB reported that business confidence and, more importantly, business conditions worsened last month with the outlook for the March quarter suggesting very sluggish growth and perhaps the makings of a mild recession.

Today’s Westpac/Melbourne Institute Consumer Sentiment survey showed a sharp upturn. The rival Roy Morgan poll also showed an improvement.

The rate cuts and falling petrol prices are seemingly the important factors: but the rising number of job cuts around the country hasn’t hit home. Tomorrow’s jobs figures from the Australian Bureau of Statistics might change that. The Roy Morgan group reckons that its unemployment survey shows a ‘true’ unemployment rate of 6.4%, not the 4.3% that the ABS estimated for October.

The Westpac-Melbourne Institute index of consumer sentiment rose by 7.5% in December to 92.0 index points, from 85.5 points in November.

Most of the 1200 consumers were surveyed after the Reserve Bank of Australia (RBA) cut the cash rate by 1% on Tuesday of last week to 4.25%. That has taken the cash rate down 3% since the rate cutting started in September.

Harvey Norman has now reported two small improvements in same-store sales in the two weeks to last Sunday, the first such improvements for more than six weeks.

Westpac chief economist Bill Evans said in a statement the improvement in consumer sentiment in December was not a given after a “disappointing rise” of only 4.3% the month before.

“Despite the announcement of a further one per cut in the Reserve Bank’s cash rate, an 18.4% fall in petrol prices and a share market rally in recent weeks, it was not obvious that the consumer sentiment index would have shown such a significant jump,” he said today in the statement.

“The index is now up 12.1% over the last two months, 16.4 % from its low point for 2008 and 3.3% above the average reading for 2008.”

Mr Evans said four of the five components in the index rose in December, with those surveyed less optimistic about the economic outlook in five years.

“Last month opinions on ‘family finances compared to a year ago’ fell by 7.8% but saw an increase of 4.6% in December,” he said.

“Expectations for finances over the next twelve months improved by 5.3%. The one year outlook for economic conditions improved by 5.7%.”

A 28.2% jump into whether now was a good time to buy a major household item, following a 15.8 rise in November, was good news for retailers, Mr Evans said.

Mr Evans said that on the housing front there was a lift in the “time to buy a dwelling index”, up 39.4% from its September reading, the highest since March 2002 when the last housing boom was well underway.

Judging by today’s housing finance figures for October, that thinking may have already produced some action from buyers.

The Australian Bureau of Statistics reported that in seasonally adjusted terms, “the total value of dwelling finance commitments excluding alterations and additions increased 1.9%. Owner occupied housing commitments increased 2.4% and investment housing commitments increased 0.7%. the total number of commitments for the refinancing of established dwellings rose 3.3% in seasonally adjusted terms.”

But there was no increase in first home buyer commitments, which eased to 19.5% from 19.7% of total owner-occupied housing finance commitments.

The rise in home loan approvals in October was the first increase for nine months. Indications are there will be increases in November and December as the first home buyers grants kick in.