‘Extraordinary and somewhat surprising’: consumer sentiment surges in November

The Westpac-Melbourne Institute Consumer Sentiment Index surged by 12.8 per cent to 103.8 in November, lifting sentiment back up into optimistic territory for the first time since 2022.

“This is an extraordinary and somewhat surprising result. November marks the first ‘net positive’ read on consumer sentiment in the best part of four years,” Matthew Hassan, head of Australian macro-forecasting at Westpac, wrote.

The index reading of 103.8 indicated that optimists slightly outnumbered pessimists in November. Excluding the pandemic, this was the most positive consumer confidence reading in seven years, Westpac said.

November’s jump in consumer sentiment was driven by a more optimistic economic outlook, the institute noted. Economic outlook sub-indexes for the next 12 months and next five years both jumped considerably, up 16.6 and 15.3 per cent respectively.

A de-escalation of US-China trade tensions and the recent US-Australia critical minerals deal likely buoyed sentiment, the institute said. The easing of external threats, as well as growing momentum for a domestic recovery, appeared to outweigh concerns related to the September quarter uptick in inflation and its implications for interest rates.

Commonwealth Bank economists noted that this was the largest monthly increase in consumer sentiment outside the pandemic since 1986. Optimistic consumer and above-average business confidence supported a continued economic recovery, the economists said.

In a promising development for retailers, the 'time to buy a major item' sub-index surged 14.9 per cent to 111.6 in November, demonstrating a positive mood for buyers. This was despite the current family finances index, 'family finances vs a year ago', which remained in net pessimistic territory at 85.2 per cent in November.

“The positive mood but patchy assessment of current finances points to a mixed lead-in to the Christmas high season,” the Westpac-Melbourne Institute noted.

Despite the net positive result for consumer sentiment, the Westpac-Melbourne Institute found that consumers were becoming less confident about the job market. The unemployment expectations index rose 9.3 per cent to 139.5 in November, reflecting expectations that unemployment would rise over the next year.

Westpac predicted that the RBA would hold the cash rate at its next meeting on 8-9 December as inflation concerns remained and consumer sentiment remained resilient.

“The November Consumer Sentiment survey shows that the dent from a changed outlook for interest rates has been more than offset by other positives, suggesting that the consumer recovery is likely to continue tracking well, at least for now.”