Australia’s consumer confidence improved modestly in May, with the Westpac–Melbourne Institute Consumer Sentiment Index rising 2.2% to 92.1 in May, recovering about a third of April’s sharp fall that followed United States tariff announcements.
“Recall that our April survey was in the field over the week that included the ‘reciprocal tariffs’ announced by U.S. President Trump,” said Hassan.
“Sentiment was markedly weaker amongst those surveyed after the announcement, with an average index read of just 86.6. Against this benchmark, the May read of 90.1 is more like a 6% rebound.”
Driving the improvement was a strong rebound in household perceptions of their current finances. The ‘family finances vs a year ago’ sub-index jumped 7% to 75.1, reversing most of April’s 8.5% slide.
The turnaround was fuelled by a 7.4% gain in the S&P/ASX 200 between surveys and a $0.13 per litre drop in average petrol prices to $1.54 nationally.
Market-sensitive age groups saw sharper sentiment gains, with financial assessments surging 23% for those over 65 and 14% for people aged 55 - 64, likely due to superannuation exposure.
However, expectations for future personal finances were more subdued, with the ‘family finances, next 12 months’ sub-index slipping 0.8% to 100.7 - still in optimistic territory but the only component to decline.
Inflation data appears to have anchored expectations for interest rate cuts. The Mortgage Rate Expectations Index dropped 7.5% to 90.8, returning to levels last seen in February - March.
Westpac noted that with all major inflation measures back within the Reserve Bank’s 2 - 3% target range, it expects the RBA to lower the cash rate by another 25 basis points to 3.85%, citing a more unsettled and threatening global backdrop and persistent domestic softness.
There was also a slight increase in labour market confidence. The Unemployment Expectations Index fell 2.1% to 121.3, indicating more consumers expect joblessness to decline. The index remains well below its long-run average of 129.
The housing sector saw mixed sentiment. The ‘time to buy a dwelling’ index climbed 5.1% to 90, narrowing the gap between pessimists and optimists to its smallest since late 2021.
Meanwhile, house price expectations rose 1.4% to 155.5, with 87% of respondents anticipating stable or higher prices in the next 12 months.
In a separate release, Australia’s business conditions weakened in April, led by a sharp drop in profitability, while capital expenditure and capacity utilisation also declined, according to the latest NAB Monthly Business Survey.
Business confidence edged up slightly by 1 point to -1 index point, but remained below average. Confidence levels varied across sectors, with notable improvement in manufacturing, and smaller gains in wholesale, construction, and finance, property & business services.
Overall business conditions fell 2 points to +2 index points in April, as a 4-point decline in profitability weighed on the index.
Conditions deteriorated most significantly in the mining and transport & utilities sectors, undoing large gains from March. However, on a trend basis, mining and recreation & personal services continued to lead, while manufacturing and retail remained the weakest performers.
Commenting on the results, NAB Chief Economist Sally Auld said: “The decline in business conditions was driven by weaker profitability. This aligned with higher purchase cost growth and weaker trading conditions reported in April.”
“The survey was fielded a few weeks after the initial tariff chaos in early April which may explain the relatively steady conditions and confidence measures,” she added.
“Overall, both business conditions and confidence remain weak relative to average levels, highlighting the risk that the economy is struggling to maintain the pick up in momentum we saw in the last quarter of 2024. We will continue to monitor how business sentiment develops in coming months in light of heightened global uncertainty and domestic developments.”
