Consumer sentiment softens as 2025 begins

Consumer sentiment softened slightly in January 2025, with the Westpac-Melbourne Institute Index of Consumer Sentiment decreasing 0.7% to 92.1.  This followed a fall of 2.0% to 92.8 in December 2024.  While still below the neutral level at 92.1, sentiment is 13.8% higher than January 2024, representing a gradual recovery in confidence in 2024, with the absence of interest rate hikes alleviating some consumer concerns. Inflation worries remain, however, as monthly CPI increased to 2.3% in November 2024 from 2.1% in October 2024, suggesting interest rate cuts may be pushed further back into 2025.

The most recent ABS retail sales (November 2024) showed an increase of 0.8%, driven by extended Black Friday promotions. November sales were only 3.0% higher than November 2023, suggesting the extended heavy discounts still had muted success as consumers remained concerned about the cost of living.  Retailers will need to balance margins carefully in the coming months, as ongoing promotions will likely be required to encourage spending. On a positive note, the cost of international travel and the value of the Australian dollar may result in consumers spending more locally.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

Consumer sentiment decreased by 0.7% to 92.1% in January 2025, according to the Westpac-Melbourne Institute Index of Consumer Sentiment. This followed a 2.0% fall in December 2024.

The survey was conducted during the week of 6-9 January 2025 and captured consumer reactions to the depreciation of the Australian dollar against the US dollar and broader concerns about the economy. Despite this fall, the index is now 13.8% higher than the same period last year and 7.9 points below the ‘neutral’ index level of 100.

The sub-indexes saw mixed results this month as key movements included:

• Family finances vs a year ago decreased by 7.8% to 77.7, reversing December’s 6.9% gain, with outright homeowners and renters feeling the most pressure.

• Time to buy a major household item increased 1.8% to 90.8, reflecting consumer responses to more than usual discounting on offer during the major sales periods (Black Friday and Boxing Day).

• Time to buy a dwelling experienced a rebound of 10.2% to 89.9, signalling growing confidence in housing affordability and expectations of potential rate cuts in 2025.

The survey indicates that while immediate financial pressures weigh on households, forward-looking measures reflect cautious optimism. The absence of interest rate increases during 2024 has alleviated some consumer concerns (reflected in the steady improvement in sentiment throughout the year), however inflation worries remain as monthly CPI increased to 2.3% in November 2024 from 2.1% in October 2024.

Source: Australian Bureau of Statistics

The most recent ABS Retail Sales data increased by 0.8% (seasonally adjusted) in November 2024, marking a 3.0% or $1.1 billion increase compared to November 2023.

The growth is attributable to the November sales events, with retailers starting Black Friday promotions earlier in the month and running them for longer compared to prior years. Most of the increase in spend in November 2024 was driven by an uptick in discretionary spending, as consumers responded to increased promotional intensity.

While all retail categories recorded growth, the largest increases were seen in:

• Department stores (+1.8%);

• Clothing, footwear, and personal accessory retailing (1.6%); and

• Cafes, restaurants, and takeaway food services (+1.5%).

Consumers embraced Black Friday sales, with discounts driving higher spending on clothing, furniture, electronics, cosmetics, and even essential goods like food, supported by price cuts and rewards incentives.