Unexpected increase in Consumer Confidence

Consumer confidence survey data released by Westpac today showed an unexpected increase in confidence among consumers in February. While sentiment is still in deeply pessimistic territory, this month’s survey recorded the biggest lift in sentiment since April 2023. However, Westpac did caution that the increase in sentiment seemed to be driven by the positive inflation news, but as the survey continued and the RBA board meeting minutes were released, responses were more restrained. That being said, this data gives us some indication that consumers believe the worst is behind us, although it is unlikely we will see any real improvement in discretionary consumer spending until a cut to the cash rate is firmly in sight.

Business sentiment and conditions continue to converge, with conditions now almost catching up to where sentiment lies. Business conditions are now a touch below their long run average, while confidence improved slightly, it still remains below average. Conditions deteriorated the most in recreation and personal services and finance, business and property. Trend conditions in the retail sector remain the worst of all industries.

Overall, this data tells us that businesses are expecting weaker conditions over the next six months at least, and have been preparing for this for some time. Consumers seem to be watching data trends closely, but maybe reacting a little too quickly to good economic news. Regardless, given the low levels of savings and very high housing costs that both renters and mortgage holders are paying, it won’t be until we see real relief in interest rates and rental inflation that discretionary spending will recover.