Household spending soars on hospitality as Westpac consumer sentiment rebounds

Falling inflation has contributed to a slight rebound in the number of Australians feeling confident about the economy.

Consumer sentiment has rebounded off the back of a sharp fall to inflation levels, but remains in “deeply pessimistic territory” as households fear the prospect of further increases to interest rates in the months ahead.

The Westpac-Melbourne Institute Consumer Sentiment index rose 2.7 per cent from 78.6 in June to 81.3 points in July.

A solid tick in the reading was largely attributed to a sharp retreat by inflation in May, which came in at 5.6 per cent compared with 6.8 per cent in April, according to the Australian Bureau of Statistics.

Westpac chief economist Bill Evans said those surveyed after the data was published in late June were very optimistic, compared with those who were surveyed after the Reserve Bank left the cash rate on hold at 4.1 per cent last week.

Post-RBA responses showed a combined index reading of 77.9, down 11.6 per cent on the pre-RBA sample and down 1.6 per cent on the June. Reinforcing those concerns are economists at the major banks who forecast a further one or two increases to the official cash rate in the months ahead to a potential peak of 4.6 per cent.

“The weaker post-RBA sentiment read is surprising but is in line with the last time the RBA opted to pause back in April,” he said.

Mr Evans said that consumers were slightly more hawkish on the interest rate outlook, with 14 per cent expecting rates to be unchanged compared with 23 per cent of consumer surveyed when the RBA first opted to leave rates on hold.

“Sentiment remains at the deeply pessimistic levels that have prevailed for just over a year now. The index plunged 17 per cent over the first half of 2022 and has barely budged since then, holding in the very weak 78-86 range,” he said.

“Even with the latest modest lift, the index is still firmly in this range and 3 per cent below its level of a year ago.”

The rebound in figures came as a NAB survey showed that business conditions remained steady despite “warning signs” of slowing growth in recent months. Leading indicators pointed to softness ahead with confidence at zero and forward orders remaining in negative territory.

Business conditions were steady at plus-9 index points in June, while trading eased 1 percentage points to 14 points and profitability rose slightly, up 2 percentage points to 9 index points.

“Business conditions have eased notably since January but remain above their long-run average, a sign of ongoing resilience,” NAB chief economist Alan Oster said.

“We continue to see warning signs in the survey about the outlook for growth, but as of June, firms were yet to see a real deterioration.”

Mr Oster said that the survey suggested that the economy remained resilient and price pressures continued through the end of June.

Consumer spending in May showed the slowest growth since the lockdown-ridden period of July 2021 at 3.3 per cent – higher from a year ago as households cut back furniture and clothing purchases.

Data from the ABS showed that spending on hotels, cafes and restaurants remained strong, with a bounce of 7.8 per cent from a year ago, while transport expenses rose 7.7 per cent as more people returned to the office.

According the ABS’s analysis of bank transaction data, household spending increased for non-discretionary by 6.9 per cent, but fell 0.9 per cent for goods. Food was the only positive contributor for that category.

All states and territories registered an increase in spending, led by a 4.7 per cent bounce in Western Australia driven by a 13.9 per cent rise in transport spending.