The Westpac-Melbourne Institute Consumer Sentiment Index fell 2% in December, dropping to 92.8 from November’s 94.6.
Despite significant improvements throughout 2024, the year ended on a cautious note as concerns about the economic outlook resurfaced.
Assessments of current financial conditions showed marked progress. The ‘family finances vs a year ago’ sub-index rose 6.9% to 84.2, reflecting a 33% improvement since the start of the year.
Tax cuts, fiscal support measures, stable interest rates, and rising household wealth buoyed sentiment, narrowing the gap between optimists and pessimists. Similarly, the ‘time to buy a major household item’ sub-index climbed 4.8% to 89.2, its highest level in over two years.
Notably, middle-income households earning $60,000–$100,000 reported the strongest improvements, with gains of 20–25% across these sub-indices.
However, forward-looking indicators declined sharply. The ‘economic outlook, next 12 months’ sub-index fell 9.6% to 91.2, while the ‘economic outlook, next 5 years’ sub-index dropped 7.9% to 95.9.
This reversal unwound nearly half of the gains made in recent months, as concerns about inflation, stagnant private demand, and disappointing GDP growth for the September quarter weighed on sentiment.
Consumers with mortgages expressed particular pessimism, with year-ahead expectations for the economy down 13.8% and personal financial outlooks falling by 10%.
Housing sentiment continued to weaken. The ‘time to buy a dwelling’ index dropped 6% to 81.6, with significant declines in Queensland and South Australia, while Western Australia showed a sharp rebound.
House price expectations also softened, with the national index falling 5.3% to 142 - the lowest since April 2023.
Confidence in the labour market remained stable, though slightly less optimistic. The Unemployment Expectations Index rose 2.7% to 123.7, reflecting marginally increased concerns about job security. Nonetheless, expectations remain below the historical average, consistent with an unemployment rate holding steady at 4%.
Consumers also appear less confident about further rate cuts. The Mortgage Rate Expectations Index edged up 2.7% to 105.8, although it remains near historical lows.
The Reserve Bank is expected to maintain rates at its February meeting, with potential easing anticipated in May, contingent on inflation trends.
While consumer sentiment has improved over the year, economic uncertainties and mixed signals from the labour market and inflation suggest caution as Australia heads into 2025.