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Consumer sentiment advanced 2.8% from the prior month to 85 points, with pessimists heavily outweighing optimists given a reading of 100 is the dividing line, a Westpac Banking Corp. survey showed on Tuesday. The index has held below 100 since March 2022.
“Consumers breathed a small sigh of relief,” said Matthew Hassan, a senior economist at Westpac. “The survey detail shows that cost of living and rate rise concerns are still weighing heavily.”
A separate National Australia Bank Ltd. survey showed business conditions, which measure sales, employment and profitability, rose to 6 points in July to be only slightly below their long-run average. Confidence declined 2 points to 1 with falls across industries except construction and recreation.
The two data sets highlight the responses of households and businesses to still-elevated inflation and borrowing costs. Westpac’s survey suggests some light at the end of the tunnel as a global monetary easing cycle gathers momentum and fiscal support kicks in.
The RBA isn’t yet ready to reduce rates after retaining its hawkish bent last week given inflation remains stubbornly sticky. But money markets and economists are certain the next move will be down. The RBA has held rates at a 12-year-high of 4.35% since November 2023.
Policymakers are monitoring consumer sentiment data to try and get a handle on Australians’ spending plans. They have repeatedly said how households respond to the tax cuts and energy rebates that began last month remains a key uncertainty. Household consumption accounts for more than half of gross domestic product.
“We expect the economy to grow more quickly in the second half of the year,” said NAB’s Chief Economist Alan Oster. “We were concerned about the sharp decline in the employment index last month, but it jumped back to an above-average level this month suggesting the robust jobs growth in the economy is continuing for now.”
NAB’s survey showed labour costs growth accelerated to 2.5%, from 1.5% reflecting the increase in award and minimum wages. In contrast, purchase cost growth eased 1.1%.
“The broader message is that economy-wide inflationary pressures are gradually abating,” Oster added.
The RBA next convenes on Sept. 23-24, with economists and financial markets predicting the RBA will again leave rates on hold. All eyes are on the monthly employment report for July later this week.
