A second Donald Trump presidency has dented an otherwise confident outlook for Australian consumers, buoyed by improving finances and the diminishing likelihood of interest rate hikes.

Pessimists still outnumber optimists in the Westpac-Melbourne Institute consumer confidence survey but the index is now 21 per cent higher than its lowest point in late 2022.

Head of macro-forecasting at Westpac, Matthew Hassan, said the index fluctuated wildly in response to the United States election, falling sharply after the Republican candidate secured victory before a “tentative recovery” by the end of the week.

The return of the former president to the White House has sparked discussion of implications for the local economy, with steep tariffs on Chinese imports into the US a key concern for Australia.

Mr Hassan said the index experienced an unusually high degree of uncertainty throughout the election week.

“That said, the mood does look to be improving and is providing some more positive signs for retailers ahead of the all-important Christmas high season,” he said.

“Certainly, spending plans are looking less austere than in previous years,” he said.

The fading risk of interest rate hikes was likely influencing the better result as well as the financial breathing room from tax cuts and energy bill help.

A separate gauge from Commonwealth Bank drawing on customer payments found consumers were finding more space in their budgets for discretionary spending.

Money flowed into recreation – with tickets to Oasis, Luke Combs, Metallica, and next year’s Melbourne Formula 1 race going on sale – as well as online marketplaces, hardware stores and discount department stores in October.

Spending on ticketing services was up a massive 27 per cent for the month.

CBA Chief Economist Stephen Halmarick said lower fuel prices, energy bill help and income tax cuts created some space in household budgets to spend on nice-to-haves.

“It’s important to note however that this increase in discretionary spending only partially offset the fall seen in September as the October boost was driven by a number of one-off major events,” he clarified.

Businesses were also reporting better conditions and improving confidence, based on National Australia Bank’s survey released on Tuesday.

In October, the business sentiment index jumped to its highest level since early 2023.

In a blow to the otherwise improving outlook for household finances, surveying of HR professionals suggests pay packet growth may slow considerably.

Wages are expected to grow by 2.7 per cent over the next year, down from 3.8 per cent in the 12 months to July 2025, the Australian HR Institute’s latest quarterly survey has found.

Australian employees are experiencing their strongest wages growth in 15 years but many workers could see their pay increases fall back below inflation, said the institute’s chief executive Sarah McCann-Bartlett.

“This could represent an engagement challenge for HR practitioners and line managers,” she said.

Annual inflation is currently at 2.8 per cent, according to the Australian Bureau of Statistics, although this is also expected to drop over the next 12 months.

If the expectations of the 600-plus senior HR professionals and decision makers surveyed are borne out, it would represent a substantial reduction on the Reserve Bank of Australia’s predictions for wages growth.

 

Poppy Johnston and Jacob Shteyman
(Australian Associated Press)