Confidence slowly recovering from global shock waves

According to the Westpac–Melbourne Institute Index of Consumer Sentiment, sentiment increased 2.2% from 90.1 to 92.1 in May 2025. Sentiment has recovered about a third of the decline in April 2025 which was related to the announcement of ‘reciprocal tariffs’ imposed by the US in early April. The rebound was also attributed to a boost in financial markets and the result of the Federal Election.

Despite an improvement of 12.0% since May 2024, sentiment remains in pessimistic territory. Whilst we expect sentiment to improve as interest rates are cut, additional rate cuts may be needed before we see a meaningful increase in discretionary spending. The “Trump slump” in April highlighted the volatility of global markets and the significant impact of external, uncontrollable events on consumer sentiment. While there is post-election optimism following the Federal vote, recent tax cuts were mostly saved rather than spent. This suggests more will be needed to encourage increased consumer spending.

The most recent ABS retail sales data recorded a 0.3% increase in March 2025. The slight increase was driven by food-related sales, continuing to drive steady growth. March sales were 4.3% above March 2024 levels. NAB Online Retail Sales also increased in March 2025 by 0.4%. Online sales growth remains high in year-on-year terms, with seasonally adjusted sales increasing 13.7% between March 2024 and March 2025.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

According to the Westpac–Melbourne Institute Index of Consumer Sentiment, sentiment increased 2.2% from 90.1 to 92.1 in May 2025. The increase in sentiment has recovered about a third of the decline in April 2025 related to the announcement of ‘reciprocal tariffs’ imposed by the US in early April. The rebound was also attributed to a boost in financial markets and the result of the Federal Election.

The sub-indexes had mixed results in May 2025:

• Family finances vs a year ago up by 7.0% to 75.1

• Family finances next 12 months down by 0.8% to 100.7

• Economic conditions next 12 months up by 2.8% to 93.0

• Economic conditions next 5 years up by 0.2% to 98.6

• Time to buy a major household item up by 3.5% to 93.2

The ‘family finances vs a year ago’ sub-index experienced the largest increase in month-on-month terms (7.0% to 75.1), following the 8.5% decline in April, showing volatility but continued overall pessimism.

‘Family finances next 12 months’ was the only sub-index to decline in May, however, remains the only sub-index above the neutral level of 100. While it is clear there is some optimism around the prospect of domestic conditions stabilising over the coming year, consumers are cautious as this has decreased 7% in the last two months.

Consumers are more upbeat on spending with the ‘time to buy a major household item’ sub-index experiencing an increase of 3.5%, and up 21.9% from a year ago. This uptick reflects growing confidence amid easing inflation, a gradual recovery from the cost-of-living crisis, and strengthened expectations of interest rate cuts.

Source: Australian Bureau of Statistics

The most recent ABS Retail sales data recorded a 0.3% increase (seasonally adjusted) in March 2025, representing a 4.3% or $1.5bn increase in sales from March 2024. Retail spending continues to grow gradually, following on from 0.3% growth in January and 0.2% growth in February. Food-related spending, being the largest sub-category, continues to drive steady growth.

Three out of the six sub-categories experienced growth across the month:

• Food retailing up by 0.7%

• Other retailing up by 0.7% 

• Clothing, footwear and personal accessory retailing up by 0.3%

• Household goods retailing remained unchanged

• Cafes, restaurants, and takeaway food services down by 0.5%

• Department stores down by 0.5%

The decline in ‘department stores’ marks a part reversal from growth of 1.5% in February 2025. ‘Food retailing’ and ‘other retailing’ both increased by 0.7% in March 2025. There have been three consecutive months of relatively high growth for food retailing (+0.7% in January and +0.6% in February). Retail volumes on a per capita basis fell 0.4% in March and remained flat for the quarter; underscoring relatively subdued demand in the absence of significant promotional activity.

The ABS Household Spending Indicator (ABS HSI) decreased 0.3% in March 2025 (seasonally adjusted), following five consecutive months of growth. The month-on-month decline was driven by a 0.4% decline in discretionary spending, while non-discretionary spending remained flat for the second consecutive month. Non-discretionary spending remains strong in year-on-year terms at 4.4% above March 2024, while discretionary spending remains 3% above March 2024 indicating a general dampening of demand when inflation is taken into account.

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales in March 2025 increased by 0.4%, following a revised increase of 1.4% in February 2025 (previously 1.3%). Growth remained high in year-on-year terms, with seasonally adjusted sales increasing 13.7% between March 2024 and March 2025. Fashion (+3.2%) again led monthly growth and accelerated on year-on-year terms. This growth has been more consistent for online sales (3.2% month-on-month versus 0.5% for broader retail fashion). This can be attributable to the larger relative contribution by international retailers to the fashion category. Online retail sales are estimated to total $61.87 billion and represent 14.1% of retail sales reported by the ABS during the 12 months to March 2025.