Retailers face cautious consumers as confidence softens

According to the Westpac-Melbourne Institute survey, consumer sentiment decreased by 3.1% to 95.4 in September 2025. The September result was a pull back from an almost euphoric jump in August following the latest rate cut. There appears to be renewed concerns around near-term economic conditions and consumers are less willing to spend on larger items following the end of the mid-year sales period. Households remain value-conscious, and a meaningful lift in discretionary spending is unlikely before the end-of-year sales period.

Persistent cost of living pressures and global trade uncertainty mean households remain cautious. For retailers, now is the time to get noticed ahead of Black Friday/Cyber Monday sales. The focus should be on building loyalty by bespoke customer targeting to increase “eyes on the brand” so that when consumers open their wallets, they capture the spend.

The most recent ABS Monthly Household Spending Indicator showed a 0.5% increase in July 2025, up 5.1% year-on-year. This was largely driven by spending on services such as health, accommodation, and transport, with non-discretionary spending (+0.8%) outpacing discretionary spending (+0.4%). NAB Online Retail Sales decreased 1.0% in July 2025, however retail sales are up 16.2% between July 2024 and July 2025.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

According to the Westpac-Melbourne Institute survey, consumer sentiment decreased 3.1% from 98.5 to 95.4 in September 2025. The decline was driven by renewed concerns around the near-term economic outlook. While the September result only partially offset August’s 5.7% gain, sentiment remains in ‘cautiously pessimistic’ territory, with outright optimism remaining elusive.

The subindexes were mixed in September 2025, led by:

• ‘family finances vs a year ago’ up 2.6% to 86.3

• ‘family finances next 12mths’ up 0.9% to 107.7

• ‘economic conditions next 12mths’ down 8.9% to 92.2

• ‘economic conditions next 5yrs’ down 5.9% to 92.7

• ‘time to buy a major household item’ down 3.4% to 98.2

‘Family finances next 12 months’ remains the strongest sub-index at 107.7, modestly above its long-run average, indicating households are enjoying some relief from lower borrowing costs and/or feeling like their situation has stabilised. However, the deterioration in both short- and long-term economic expectations points to renewed uncertainty about the broader outlook, likely driven by the latest monthly CPI data and continued global trade concerns in the wake of tariffs introduced by the US earlier this year. Meanwhile, the ‘time to buy a major household item’ sub-index slipped back below neutral after a strong August reading, highlighting that consumers are prepared to spend around sales events but remain hesitant to lift discretionary spending on a sustained basis.

Overall, the September result highlights that while households are experiencing some financial relief, they remain cautious about the broader economic outlook. For retailers, discretionary spending momentum is likely to lift in November around major sales events such as Black Friday and Cyber Monday, supported by improving household finances. However, uncertainty around employment and interest rates means prudent inventory management and pricing discipline will remain critical until consumer confidence becomes decisively more optimistic.

Source: Australian Bureau of Statistics

The most recent ABS Monthly Household Spending Indicator recorded a 0.5% increase (seasonally adjusted) in July 2025, representing a 5.1% or $3.7bn increase on July 2024. This marks nine increases over the last ten months, with growth across the month driven by spending on services (+1.6%) including health, accommodation, and travel rather than spending on goods (-0.3%) following a relatively strong mid-year sales period. Services spending remains strong in year-on-year terms at 8% above July 2024, while goods spending has lagged with a 2.7% increase over the same period.

Household spending by sub-category was largely mixed across the month:

• ‘health’ up 1.8%

• ‘transport’ up 1.5%

• ‘miscellaneous goods and services’ up 1.5%

• ‘hotels, cafes, and restaurants’ up 1.4%

• ‘recreation and culture’ up 0.2%

• ‘food’ down 0.1%

• ‘clothing and footwear’ down 1.2%

• ‘furnishings and household equipment’ down 1.4%

• ‘alcoholic beverages and tobacco’ down 1.9%

‘Alcoholic beverages and tobacco’ declined for the third consecutive month reflecting the impact of the winter months on social events. Spending on health saw the largest increase in July 2025, following a 0.1% fall in June 2024. ‘Miscellaneous goods and services’ spending remains notably strong with a 1.5% increase in July 2025. This marks a third successive increase for the sub-category with a 0.5% increase in June 2025 and a 1.6% increase in May 2025. On a regional basis, all states aside from New South Wales (-0.3%) recorded growth in July 2025, led by the Northern Territory (+2.2%) and Western Australia (+1.6%).

The overall 0.5% increase for the index included a 0.4% increase in discretionary spending and a 0.8% increase in non-discretionary spending. Discretionary spending across the month was driven by accommodation and transport, while non-discretionary spending was driven by health and medical services, and motor vehicle repair and maintenance. On an annual basis, non-discretionary spending is up 5.9% on July 2024, while discretionary spending is slightly lower at 4.6% reflecting tougher cost-of-living conditions for households in the past year.

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales Index decreased by 1.0% in July 2025, following a revised increase of 2.2% (previously 2.6%) in June. Growth remains high on an annual basis however, with seasonally adjusted sales increasing 16.2% between July 2024 and July 2025. All categories recorded declines in July, except ‘department stores’ (+3.9%) and ‘takeaway food’ (+0.4%). The largest decline across the month was ‘homewares and appliances’ (-4.4%); the category which recorded the highest growth in the month prior. Although online retail sales declined month-on-month, they remain strong on a three-month moving average, with the June gains only partially unwound. All states and territories recorded a fall in July, with the two largest sales states New South Wales (-1.5%) and Victoria (-1.4%) experiencing relatively significant declines. NAB data estimates Australians spent $64.88 billion on online retailing, making up 14.6% of total retail spend.