Key insights from the week that was.
In Australia, the week’s dataflow kicked off with a bang as Westpac-MI Consumer Sentiment surged 12.8% in November to 103.8, the first reading above the optimist / pessimist divide since the economy reopened after the ‘delta’ outbreak. A calmer geopolitical backdrop following the de-escalation of US-China trade tensions and a more assured domestic recovery look to be behind the result.
While respondents showed some renewed concerns over inflation and the interest rate outlook, these negatives were offset. It is interesting to note that responses received after the RBA’s November decision were positive, suggesting the Board’s decision and communications were construed as measured rather than outright hawkish.
On balance, these factors led to a significant improvement in views on the economic outlook for one year (+16.6%) and five years (+15.3%). The ‘time to buy a major household item’ sub-index also jumped (+14.9%); together with less-restrained intentions for Christmas spending, this outcome suggests the foundation for the consumer recovery is firming. Positive wealth effects associated with the housing upswing are arguably also at play, as evinced by strong investor-led growth in home lending and Westpac-MI house price expectations moving to a new cycle high.
While consumers have grown more anxious on the jobs outlook, this week’s labour force data confirmed that the labour market is only softening at a very gradual pace. Employment was firmer-than-expected in the month, rising +42.2k, keeping annual growth steady at 1.5% on a three-month average basis. The unemployment rate also fell from a ‘thin’ 4.5% in September to a ‘fat’ 4.3% in October (–0.1ppt from 4.45% to 4.34%). Looking through the noise, the steady-but-modest uptrend in the unemployment rate in place throughout 2025 remains intact. At its current level, the unemployment rate is broadly consistent with full employment – indicative of a labour market in good health but which poses little-to-no risk to inflation via wages.
The rebalancing of employment growth from the ‘jobs-rich’, public-funded care economy to the less ‘jobs-intensive’ market sector is a key driver of the softening employment trend. The latest NAB business survey suggests this transition remains in good stead, the business conditions index rising to its highest level since March 2024. Confidence is re-emerging but remains fragile. Given the weak starting point for investment, businesses might hold off on capacity expansion.
The main development offshore this week was US Congressional approval to end the government shutdown in place since the beginning of October. While a welcome development, another partial shutdown from the end of January is a distinct possibility, with only the Departments of Agriculture and Veteran’s Affairs, the Food and Drug Administration, military construction projects and Congress funded through to end-September. There is no guarantee a vote on extending the Obamacare subsidies will pass over year end, and so debate is likely to remain highly politicised over funding the remainder of the Government from February.
In coming weeks, US statistical agencies will attempt to bring the dataflow back up to date, though the market has already been told some upcoming releases will be incomplete. FOMC members, by and large, continue to focus attention on inflation risks, viewing these as more significant and immediate than the labour market’s ongoing deceleration. Arguably then, it will take a material deterioration in conditions for the Committee to ease again at the December meeting.
