Consumer, businesses outlook improves on expectations of a rate cut

Aussie consumers and businesses are seeing through the high cost of living as sentiment and spending improve, new reports show.

Australian consumers and businesses are feeling confident about their financial futures, as falling cost of living pressures, stage three tax cuts and expectations of a rate cut lifts sentiment.

In good news for the Aussie economy, three separate reports show confidence is starting to rise following two years where consumers and businesses felt under pressure.

The latest Westpac-Melbourne Institute consumer sentiment survey shows families are feeling more at ease with their finances, although they are worried about the potential changes under US President-elect Donald Trump.

Westpac’s head of Australian macro-forecasting Matthew Hassan said consumer sentiment rose 5.3 per cent to 94.6 in November, although sentiment became more volatile after last week’s presidential election as consumers worried about the local currency and the impact of Chinese tariffs on Australia.

“Sentiment posted a sharp fall following the US election result but with a tentative recovery forming towards the end of the week, with an average index read of 91.1 among responses gathered between November 6 and November 9,” Mr Hassan said.

Mr Hassan said overall the forward view for family finances had improved over the next 12-months, particularly among Queenslanders, middle-income earners and those aged between 55 to 64.

Aussies are seeing light at the end of the tunnel as cost of living pressures ease. Picture: NewsWire / John Appleyard

“Consumers are becoming ‘cautiously optimistic’ about the outlook for both the economy and their finances,” Mr Hassan said.

“Current assessments of family finances also point to some further easing in cost-of-living pressures, albeit with sentiment still deeply negative.

“The ‘family finances vs a year ago’ subindex rose 6.8 per cent and is now up 25 per cent from its May low.”

This rising sentiment is leading to stronger consumer spending.

The CommBank Household Spending Insights Index increased by 0.8 per cent to 152.5 in October, led by spending on Household Goods (+2.5 per cent) and Recreation (+1.6 per cent).

The strong growth in household spending was event driven as ticketing services rose by 27 per cent off the back of tickets for Oasis, Luke Combs and Metallica concerts as well as the Melbourne F1 which went on sale during October.

“Spending rose marginally in October as income tax cuts, lower petrol prices and energy rebates freed some consumers up to spend on discretionary items,” CBA Chief Economist Stephen Halmarick said.

“It’s important to note however that this increase in discretionary spending only partially offset the fall seen in September as the October boost was driven by a number of one-off major events.”

Aussies are spending more as they are feeling more confident about the economy. Picture: NewsWire / John Appleyard

While the news is positive, Mr Halmarick said household spending was unlikely to meaningfully move higher until there is an interest rate cut.

“Higher disposable income from the July income tax cuts, combined with lower petrol prices and lower utility bills may have helped strengthen spending in recent months, however the increase is likely softer than would have been expected by the RBA. We don’t anticipate seeing a substantial increase in consumer spending until the RBA commences an interest rate easing cycle, which we now expect in February 2025,” Mr Halmarick said

Roy Morgan Business Confidence has now improved to its most positive rating for well over two years since April 2022 and is the highest it has been since the Albanese government was elected in May 2022.

Net sentiment on whether now is a ‘good or bad time to invest in growing the business’ improved significantly in October with only 42.9 per cent (up 6.9ppts) saying the next 12 months will be a ‘good time to invest’ in growing the business and only around a third, 35.2 per cent saying it is a bad time to event.

“The rapid reduction in inflation in recent months is building expectations among many, including businesses, that the Reserve Bank will soon be embarking on a new cycle of interest rate cuts – as their central bank counterparts overseas have already begun,” Roy Morgan CEO Michele Levine said.

Originally published as Consumer, businesses outlook improves on expectations of a rate cut