By Lucinda Jerogin, Associate Economist at CBA
- The CommBank Household Spending Insights index recorded its sixth consecutive month of gains, lifting by 0.3% in August to be 5.0% higher annually.
- Business survey data reinforced our view that the Australian economy is recovering. Consumer sentiment was weaker in September after a strong result in August.
- Offshore, geopolitical tensions made headlines. US economic data reinforced the case for imminent Fed rate cuts. The ECB kept interest rates on hold as was widely expected.
- The week ahead will see the release of the August Labour Force Survey in Australia. Q1 25 population data is also due.
- Abroad, four central banks meet. The FOMC will take centre stage. Our international economics team considers a 25bp cut a done deal. In England and Japan, the BoE and BoJ are expected to keep rates on hold. In Canada, we anticipated a 25bp cut.
It was a quieter week locally with survey data the major drawcard. WBC-MI consumer sentiment dipped to 95.4 in September from a 3.5 year high of 98.5 in August. The index sits below the 100 level, which separates pessimists from optimists, as consumers appear to be cautiously pessimistic about the economic outlook.
A shallow and drawn-out monetary policy easing cycle has been a headwind to sentiment. As has trade uncertainty abroad. Nonetheless, the 75bp of cuts the RBA has delivered to date this cycle are flowing through the economy and supporting household incomes.
Inflation is moderating and house price expectations are rising, suggesting consumer sentiment will gradually improve from here, albeit households remain cautious following the cost-of-living squeeze in recent years.
The August NAB business survey reinforced our view that the economic recovery is underway. Business conditions rose 2pts to 7 index points, driven by gains in employment and profitability. Business confidence eased, however, now sits broadly in line with the long run average.
Improving confidence and conditions can help support private sector investment, a critical component of a smooth public to private led growth transition. We view this transition as the primary risk to the economic outlook, however, signals from the labour market are positive.
To round out the survey data, we released the August edition of our CommBank Household Spending Insights. The CommBank HSI recorded its sixth consecutive month of gains, lifting by 0.3% in August. Since March, growth in the HSI has picked up pace buoyed by interest rate cuts, rising home prices and improved incomes and sentiment. The annual rate now sits at 5.0%, roughly where we believe a healthy rate of household consumption lies based on our model estimates.
In totality, data released this week reinforced our view the Australian economy is gradually picking up steam. We continue to expect the RBA to deliver only one further interest rate cut this cycle in November taking the cash rate to 3.35%—close to where we see the neutral rate.
Offshore this week, the ECB kept rates on hold as was widely expected. In the post meeting communication, President Lagarde noted that inflation in the Eurozone was ‘in a good place’ and risks to the outlook were more balanced. Our international economics team expects one final rate cut by the ECB in December as US tariffs place a drag on demand for European exports.
In economic data, the US economy created almost one million fewer jobs in the 12 months to March 2025 than previously estimated after the BLS revised the figures lower in the regular re-benchmarking process. CPI printed broadly in line with expectations, greenlighting an FOMC interest rate cut next week.
The week ahead will see the release of the August Labour Force Survey in Australia. We expect a 20k lift in employment and unchanged participation rate to keep the unemployment rate steady at 4.2%. The risk lies with a slightly higher unemployment rate of 4.3% due to rounding given the 4.24% rate in July. Q1 25 population data is also due.
Abroad, all eyes will be on the FOMC. A 25bp cut is fully priced by markets and our international economics team’s base case. The risk lies with a 50bp cut.
Three other central bank meetings are also scheduled. In England and Japan, the BoE and BoJ are expected to keep rates on hold. In Canada, the team anticipated a 25bp cut given weak employment and GDP data.
