The Westpac–Melbourne Institute Consumer Sentiment Index remained largely unchanged in February, inching up 0.1% to 92.2.
While sentiment improved significantly in the latter half of 2024, it has stalled in recent months as household financial pressures persist and global uncertainty weighs on expectations for domestic rate cuts.
The latest readings suggest a ‘cautiously pessimistic’ consumer mood, with many still struggling with cost-of-living pressures.
Household finances appear to have come under renewed strain since the start of the year, potentially reflecting a larger-than-usual post-Christmas financial hangover.
However, optimism about future finances is rising, with the ‘finances, next 12 months’ sub-index at 105, its highest level in three years.
Consumer expectations for interest rates have shifted, with the Mortgage Rate Expectations Index falling 14.2% to 90.7, its second-lowest reading in 15 years.
More borrowers now expect rates to decline, buoyed by improving inflation data. Economic confidence remains subdued, with expectations for the next 12 months and five years ticking higher but still below the neutral 100 level.
Buyer sentiment remains weak, with the ‘time to buy a major household item’ sub-index barely rising to 90.9. This continues a three-year slump, the longest since the survey began.
The labour market outlook also remains stable, with the Unemployment Expectations Index dipping slightly to 125.8, indicating expectations of a steady jobs market.
Meanwhile, NAB's Monthly Business Survey indicated weakening conditions in January, reversing gains from the previous month as trading conditions and profitability declined, while employment edged higher.
In contrast, business confidence rose to 4 index points, with broad-based improvements across industries, bringing confidence and conditions closer together after two years of divergence.
“Conditions weakened in the first read of the year,” noted NAB Chief Economist Alan Oster. “This was driven by weaker trading and profitability conditions, while employment conditions marginally improved. Of note, retail conditions pulled back after strong gains in December,” said Mr Oster.
Capacity utilisation fell to 82%, continuing its gradual decline, though it remains above average, as do labour cost growth and output price inflation.
Despite the lift in confidence, most activity indicators softened, including capital expenditure, suggesting economic growth remains sluggish.
While late Q4 data showed a rebound in household spending, sustained improvement will be needed for business conditions to recover.
Confidence rose across most industries except mining and transport, while business conditions fell below the long-run average, driven by declines in trading and profitability.
Mining and retail recorded significant declines, while manufacturing and transport improved. Conditions weakened in most states except Western Australia and South Australia, with Victoria now the weakest.
Forward orders fell slightly to -3 index points, and capital expenditure dropped sharply. Purchase cost growth eased, but labour costs edged higher, while product price inflation remained steady, with a slight uptick in retail prices.
