Consumer confidence surveys — particularly the Westpac-Melbourne Institute Consumer Sentiment Index — are among the most widely cited and least understood economic indicators in Australia. They are frequently reported as if they directly measure what consumers will spend, when in reality the relationship between confidence and spending is complex, conditional, and often misleading in the short term. Here is how to read these surveys properly.
What the Survey Measures
The Westpac-Melbourne Institute survey asks approximately 1,200 Australians five questions about their family finances over the past year and the next year, economic conditions over the next year and the next five years, and whether now is a good time to buy a major household item. The index has a long-run average of 100; readings above 100 indicate optimists outnumber pessimists; below 100 indicates the reverse. The index has been persistently below 100 since early 2022.
Confidence vs Spending
The relationship between consumer confidence and actual spending is weaker than popular commentary suggests. In Australia, household spending is strongly driven by real disposable income, employment security, and housing wealth — factors that confidence surveys partly capture but do not fully reflect. During the pandemic, consumer confidence collapsed but household spending held up because incomes were supported. The reverse — high confidence with weak spending — is also possible when incomes are constrained.
What Current Readings Signal
The current below-average confidence readings reflect genuine financial stress for many households, but they do not inevitably foreshadow a spending collapse. As rate cuts deliver relief to mortgage holders and the labour market remains resilient, the conditions for a confidence recovery are building. Our expectation is that confidence will recover gradually through 2025, with spending growth remaining modest but positive — consistent with an economy that avoids recession but does not feel particularly prosperous.
