Consumer Confidence Rises as Spending Increases

After years of cautious spending, Australians are once again opening their wallets, fueling speculation of a potential rate cut.

According to an ANZ-Roy Morgan report, consumer confidence increased by 2.5 points to 88.5—the highest level since May 2022 and 4.7 points higher than the same period in 2024.

"Households are feeling more confident about the economic outlook," said ANZ economist Sophia Angala. "Short-term economic confidence has reached its highest level since April 2022, while five-year economic confidence hit a 12-month high." She added that declining weekly inflation expectations and speculation about a potential RBA rate cut in February may have contributed to this improvement.

However, financial sentiment remains mixed. Only 20% of Australians feel better off than last year, while 46% believe they are worse off. Looking ahead, one-third expect financial improvement in the next year, whereas 28% anticipate further difficulties.

Broader economic outlooks also vary. While 27% expect poor economic performance in the coming year, optimism has risen—11% are hopeful, the highest figure since July last year. Over a five-year horizon, optimism increases to 13%, with 17% expecting economic struggles.

Despite financial concerns, spending habits are shifting. The percentage of people who believe now is a good time to buy a major household item rose to 27% (up 2 percentage points), while those who disagree dropped to 44% (down 3 percentage points).

These findings align with Australian Bureau of Statistics (ABS) data, which shows household spending rose 0.4% in December, following increases of 0.8% in November and 1% in October. The rise was largely driven by discretionary purchases such as new vehicles, dining out, air travel, and streaming services.

"Consumers have taken advantage of end-of-year sales, driving a sustained rise in spending to close out 2024," said Robert Ewing, ABS head of business statistics.

Rick Maggi CFP, Financial Advisor/Planner (Perth), Westmount Financial