Australia's Westpac-Melbourne Institute index of consumer sentiment rose 2.2 percent to 92.1 in May, up from the six-month low of 90.1 in April.This survey was conducted last week.

Respondents to the survey reported improved confidence in the outlook for the domestic economy over the next twelve months and five years, perhaps indicating fewer concerns about the impact of global trade tensions than they had a month earlier. Respondents, however, reported a further deterioration in sentiment about the outlook for family finances over the next twelve months despite reporting more confidence that the Reserve Bank of Australia will cut policy rates over thenext twelve months.

The Westpac-Melbourne Institute Index of Consumer Sentiment is based on a survey of 1,200 consumers on their assessment of short-term and long-term prospective economic conditions and their own financial circumstances. The survey is conducted early each month, usually just before and just after the Reserve Bank of Australia's monthly policy meeting.

The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is on whether economic growth is too strong and leads to inflation.

Consumer spending is the largest part of economic activity, so markets always closely follow consumer behaviour and sentiment. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.