Key insights from the week that was.
Ahead of the worst of the current conflict, the ABS’ household spending indicator gained 0.3% in February, in line with January’s result and the trend pace of the past two years. Services continued to drive growth overall, aided in particular by holiday-related spending. Goods spending only managed a 0.1% gain, however, remaining weak.
Our Westpac-DataX Card Tracker suggests spending growth is likely to moderate in coming months as higher energy prices and weaker sentiment are felt, though a lasting end to hostilities could ease concern and see households look through some of the cost shock already in train. Geopolitical considerations are challenging for market participants to digest, let alone households and small business. For these individuals, in the fulness of time, pricing responses and time delays up and down the supply chain could prove as, or more, significant than the energy market dynamics currently being witnessed. Risks for the Australian consumer are therefore likely to linger.
In New Zealand, the RBNZ maintained the stance of policy as expected. However, our New Zealand team took the commentary to be hawkish, with a particular focus on second-round inflation pressures. The RBNZ’s short-term inflation forecast is now 4.2%yr at June 2026, in line with Westpac NZ Economics’ 4.1%yr projection. As a result, Westpac’s expected timing for the first hike for the coming cycle has been brought forward from December to September 2026, with the risk of a further acceleration if evidence of second-round inflation impacts accumulates.
Further afield, the data flow was concentrated in the US and mixed in tone. Over the Easter long weekend, nonfarm payrolls rebounded 178k in March, bringing the three-month average back up to 68k compared to an average monthly outcome of -8k in the second half of 2025 and 10k over the full year. The unemployment rate was also consistent with labour supply and demand being in balance in March, edging back down to 4.3%. Note though, this outcome was due to a further decline in the participation rate (now down 0.7ppts since April 2025) rather than an increase in household survey employment.
The weak outcomes for employment through late-2025 look to increasingly be affecting household demand – indeed, the downward revision to Q4 GDP to just 0.5% annualised was in part due to sub-par consumption growth (1.9% annualised).
Since the turn of the year, momentum looks to have slowed further, with real personal consumption expenditure up just 0.1% in February after a flat January. With business investment soft and susceptible to downside risks (core goods order growth in Q1-to-date is less than a third of the pace registered in Q4), US Q1 GDP growth looks likely to maintain a pace well below trend, closer to Q4’s third estimate than the 1.3% annualised pace currently projected by the Atlanta Fed’s GDPNow nowcast. This is before the sentiment and cost of living shock emanating from the Middle East is felt.
The above outcomes are unlikely to materially alter FOMC member’s baseline view and overall risk assessment. While the latest meeting minutes indicate “a vast majority of participants” see “risks to the employment side of the mandate… [as] skewed to the downside”, the labour market is considered to be in good health overall. Active risk assessment is therefore likely to focus more on price uncertainty, both with respect to the initial jump in energy prices and second-round effects which, over time, could build greater persistence into the core inflation pulse. This is not to say that the FOMC will vote on hiking interest rates anytime soon, in contrast to the RBA and RBNZ, but it likely means debate over a need to cut further will be deferred for the foreseeable future.
