Prospects for the housing and retail sectors - two key engines of the economy - continue to improve, adding to confidence that Australia may ride out the worst global downturn in generations.

Confidence in the real estate market prompted buyers to take out 2.2 per cent more home loans in May, marking the eighth month in a row of increases, according to the Australian Bureau of Statistics.

''The policy stimulus from the Federal Government and the central bank has helped boost the housing market, offsetting the deterioration in the labour market conditions that would otherwise subdue the willingness of people to purchase houses,'' said economist Matt Robinson of Moody's Economy.com.

Separately, the government's $20 billion cash handouts have helped consumer confidence jump in July for a second straight month, sending the monthly Westpac-Melbourne Institute survey to its highest in 19 months.

According to the survey, consumer confidence soared 9.3 per cent in July to 109.4. The surge in June had been a healthy 12.7 per cent.

The Reserve Bank yesterday left official interest rates unchanged at a record low of 3 per cent, citing gathering evidence that the global economy is stabilising. Australia remains one of the few developed economies to avoid sinking into a recession as measured by two quarters of contraction.

''Downside risks to the outlook have diminished, with conditions in global financial markets improving this year and action to strengthen balance sheets of key financial institutions under way,'' RBA governor Glenn Stevens said.

There's even some confidence building in the corporate sector - one of the weakest parts of the economy - that an upturn is within sight.

A survey of executives by the Australian Chamber of Commerce and Industry found expectations for the September quarter rose to an index of 54.5, the highest level in a year.

''We believe this is mainly on the back of continuing better economic news, with respect to avoiding a technical recession ... also some better international economic news with some resilience in the US economy and continuing good news on China,'' ACCI's acting chief executive Greg Evans told reporters in Canberra.

Home-front hope

The number of home loans, seasonally adjusted, increased 2.2 per cent in May, according to the ABS, quickening from the 0.9 per cent increase in April.

A survey of economists had expected only a 1.3 per cent gain in May.

First-home owners, as a share of owner-occupied borrowers, showed continued appetite for property, increasing to 29.5 per cent in May, from 28.6 per cent in April, revealing the continued demand spurt triggered by the Federal Government's first-home owners grant.

Loans for owner-occupied housing rose 2.3 per cent in the month, while loans for investment homes gained 2.4 per cent.

Perking up

As fears about an economic meltdown ebb, consumers have also grown more optimistic about the future.

Consumer confidence "is 38.5 per cent above its level a year ago and at 109.4 optimists decisively out-number pessimists for the first time since December 2007," Westpac chief economist Bill Evans said in a statement. Any figure above the 100-mark indicates optimists outnumber pessimists.

The latest read-out on consumer sentiment follows surprisingly strong retail sales for May and a string of retailers reporting better-than-expected turnover at the cash register.

Westpac's Mr Evans noted the relief that Australia has for now dodged a recession - according to first quarter GDP growth of 0.4 per cent - along with the impact of the Federal Government's cash splash, had lifted shoppers' spirits.

The "unexpected resilience" of the job market has also helped, Mr Evans said. "Over the last two months the unemployment rate has remained steady."

"It appears that firms which only a year ago were nominating a shortage of quality labour as the major constraint on their businesses are now hoarding labour," he said.

Australians will get a better idea of the strength of the labour market tomorrow when fresh figures are released. The unemployment rate stands at 5.7 per cent. Analysts expect it to rise to 5.9 per cent tomorrow with the release of the June data.

"The lead indicators are suggesting that firms have sharply curtailed plans to employ new workers but the ongoing switch from full-time to part-time highlights firms' efforts to retain workers."

czappone@fairfax.com.au

BusinessDay