Australian consumers have become a little more optimistic, but confidence remains among the weakest recorded in decades, highlighting the ongoing financial pressures facing households despite easing concerns over fuel prices and interest rates.
The latest Westpac–Melbourne Institute Consumer Sentiment Index, released today, rose 4.1 per cent in July to 83.9, recovering from June’s decline to 80.6. While the increase marks a welcome improvement in household sentiment, the index remains well below the neutral level of 100, where equal numbers of respondents are optimistic and pessimistic. Readings below 100 indicate pessimists continue to outnumber optimists.
Westpac described the result as a sign that consumer pessimism has eased rather than disappeared. The bank noted that sentiment remains in the bottom 10 per cent of readings recorded during the survey’s 50-year history, underscoring the fragile state of household confidence.
In a note to investors, AMP Capital economist My Bui said, “We think these short-term improvements (concentrated in family finance component surveys) are unsustainable. The low levels of confidence similar to the peak of the cost-of-living issues in 2022-24 still point to slower spending growth from here.”
According to Westpac, much of the improvement reflects relief that some of the worst fears confronting households have not eventuated.
Concerns over soaring energy prices, further aggressive interest rate increases and a sharp deterioration in the labour market have moderated since the previous survey, helping improve confidence.
Consumers reported a more positive assessment of their current financial position than a month ago. The survey’s “family finances compared with a year ago” measure rose 5.6 per cent, although it remains well below levels seen before the recent period of elevated inflation and rising borrowing costs. More encouragingly, expectations for family finances over the next 12 months jumped 13.4 per cent, suggesting many households believe conditions may gradually improve.
Nevertheless, the report makes clear that Australians are still exercising considerable caution. Respondents remain reluctant to make major household purchases, reflecting continued cost-of-living pressures and uncertainty about the broader economic outlook. High mortgage repayments, elevated grocery prices and rising household bills continue to weigh heavily on family budgets despite recent improvements in inflation.
The survey also indicates households have become less concerned about future interest rate increases. Westpac’s Mortgage Rate Expectations Index declined again in July, with fewer respondents expecting mortgage rates to rise significantly over the next year. Around 60 per cent of consumers still anticipate higher mortgage rates, but this is down from 66 per cent in June, suggesting fears of an extended tightening cycle have eased.
Confidence in the labour market also improved. The Unemployment Expectations Index fell 7.1 per cent, returning to around its long-run average. The result suggests Australians are becoming less worried about losing their jobs, an important factor supporting consumer spending and overall economic resilience.
Housing sentiment presented a mixed picture. While confidence among prospective homebuyers continued to recover from extremely weak levels, Australians became less convinced that property prices would continue rising. Westpac’s House Price Expectations Index fell to its lowest level in three years, with fewer than half of respondents expecting house prices to increase over the coming 12 months.
The latest survey provides an important snapshot of the challenges facing the Australian economy. Consumer spending accounts for a significant share of economic activity, meaning prolonged weakness in household confidence can weigh on retail sales, housing activity and business investment.
Although today’s figures suggest conditions are stabilising, confidence remains historically subdued. Westpac believes the improvement reflects a reduction in immediate risks rather than a return to genuine optimism. Household finances remain under considerable pressure, and many consumers are still uncertain about the economic outlook.
For policymakers, the survey reinforces the delicate balancing act confronting the Reserve Bank of Australia. Inflationary pressures have eased somewhat, but consumers remain highly sensitive to borrowing costs and living expenses. Any further tightening of monetary policy would likely test household resilience, while sustained improvements in inflation and real incomes could gradually restore confidence.
For now, Australian consumers appear cautiously relieved rather than genuinely optimistic—a modest improvement that suggests the economy has stepped back from the worst-case scenarios, but one that still leaves households facing a challenging financial environment.
NAB Business Confidence survey
NAB’s latest survey shows business confidence dropped sharply in Q2, with businesses pointing to uncertainty from the Middle East conflict and the federal budget as drivers.
NAB reported, “The forward-looking indicators were also soft across the board in the Q2 survey. Business expectations for conditions both 3- and 12-months ahead fell notably, while capex plans for the next 12 months and forward orders also declined. Capacity utilisation fell to 82.0%, reaching a new multi-year low but remaining above the long-run average.”
Commenting on today’s NAB Survey, Bui said, “Similarly, business confidence has trended up lately as worst case scenarios around energy prices & economic growth haven’t materialised, though they remained weak relative to history. In June, business confidence rose 9 points to -5, still below the neutral level of zero.
“Business conditions survey, a more lagging indicator, remained flat over the past few months at 3 after falling quickly in the first half of 2026.Overall, business surveys have been dragged down by lower trading conditions and profitability, while employment conditions have held up slightly better.”
