Key insights from the week that was.
The Westpac-MI Consumer Sentiment Survey provided yet another gloomy read in February, the headline index slipping a further 2.6% into pessimistic territory to 90.5. Much of the fall appears to have been driven by a re-assessment of current family finances and spending attitudes following recent upside inflation surprises. The ‘family finances vs a year ago’ and ‘time to buy a major item’ sub-indexes fell 4.7% and 5.6% respectively to be well below long-run average levels.
While sentiment amongst those surveyed after the RBA’s decision to raise the cash rate by 25bps was 2.6% lower than the responses received prior, the hit to confidence was much smaller than the average -3.8% response recorded in rate hike months through history. Consumer rate expectations are currently quite hawkish, with over 80% of consumers anticipating mortgage rates to rise this year, nearly half of which expect an increase of at least 100bps. This is contributing to more cautious homebuyer sentiment, pointing to downside risks in dwelling finance, notwithstanding the boost associated with the expanded First Homebuyer Guarantee scheme.
Against this backdrop, the downside surprise in December’s household spending figures (–0.4%mth) was, at face value, a concern. However, being a data series with limited history, shifting seasonal patterns such as the ‘pull-forward’ effect of sales events like Black Friday can drive significant volatility month-to-month. While weaker confidence could make for a somewhat shakier start to 2026, consumption still looks set to deliver robust growth this year. For our in-depth take on the consumer, see our latest Red Book.
In the US, January nonfarm payrolls surprised materially to the upside, rising 130k, or 113k net of revisions to November and December. Having edged lower over the 6 months to October, averaging -13k per month, payrolls have since risen 73k per month. The household survey was also constructive in January, the unemployment rate edging lower from 4.4% to 4.3% as the participation rate gained 0.1ppt to 62.5%. Average hourly earnings also maintained a robust growth pace, up 0.4% in the month and 3.7% over the year.
Retail sales, however, surprised to the downside in December. Headline sales were flat and the control group, which strips out volatile items and feeds through to GDP, fell 0.1%. Following the longest ever Federal Government shutdown and with inflation continuing to show persistence, as tariffs feed through to consumer prices and capacity constraints are felt, consumer caution through year end is unsurprising.
In Japan meanwhile, Prime Minister Sanae Takaichi and the LDP achieved a landslide win in the lower house election, the LDP winning a super majority in their own right by winning two-thirds of the seats. The result will bolster the LDP’s ability to undertake reform, starting with a JPY17.1tril fiscal package that focuses on increased defence spending and public investment and also intends to implement a temporary consumption tax holiday for food items. The intent behind these measures is to improve economic capacity and encourage greater discretionary spending by households.
Closer to home, our New Zealand colleagues updated their views on the path forward for New Zealand’s economy and monetary policy. Unemployment remains elevated, but accommodative monetary policy has sparked above-trend growth. This momentum is expected to continue through 2026 and 2027. So, with inflation risks still evident, the RBNZ is now expected to quickly return policy to a neutral stance from December 2026 through 2027, and then to a moderately restrictive level of 4.25% by March 2028. Westpac NZ economics’ detailed views can be accessed here. Westpac Economics’ broader take on the world and latest views on Australia will also be released today on Westpac IQ.
