By Belinda Allen, Senior Economist at CBA
- The CommBank Household Spending Insights index lifted by 0.5% in May after a flat outcome in April.
- The data shows some green shoots, but overall the pace of consumer spending is slower than expected in 2025
- Business and consumer sentiment surveys were on the disappointing side.
- The May labour force survey will be the highlight in the week ahead.
- Offshore a soft US CPI report was a focus as well as trade negotiations between the US and China.
- The week ahead brings monthly activity data in China and NZ Q1 25 GDP.
- Three central banks meet. We expect no change from the FOMC, Bank of England nor the Bank of Japan.
It was a relatively quiet week locally in Australia with sentiment data released and our own CommBank Household Spending Insights data for May.
Offshore there was a steady stream of data and economic news. The highlight was the softer than expected US inflation report, printing at 0.1%/mth compared to consensus expectations of 0.3%.
There was some limited evidence that higher US tariffs were passed on to consumers in the form of high prices. It appears though that declines in recreational services and durable goods more than offset any upward pressure on prices.
Instead, profit margins appear to be wearing some of the pain, or retailers have not yet passed on higher prices to consumers.
See here for our updated view on the FOMC rate cycle with later cuts now expected with a Funds rate of 3.75% by early 2026.
The other significant news was ongoing trade talks between the US and China which resulted in the previously negotiated ‘truce’ being restored. At the same time, President Trump reiterated his intention to send letters outlining unilateral tariff rates to trading partners within two weeks.
Locally Tuesday brought the regular look at business and consumer sentiment. Consumer sentiment lifted by just 0.5% in June, taking the index to 92.6, still below the pre-Liberation Day read of 95.9.
Lower interest rates have boosted some aspects of consumer sentiment, particularly time to buy a major household item. But global uncertainty appears to be weighing on consumers overall mood.
Concerns around unemployment also lifted, although remain below average, but also fits in with readings from the NAB business survey where the employment component hit a cyclical low (more below).
Overall business conditions are below average and the weakest since the pandemic. The readings highlight the challenges in the private sector economy and elevate the importance of a recovery in the private economy as public sector growth looks to step back as the dominant driver.
Our CommBank Household Spending Insights showed a 0.5% lift in spending in May. Overall spending growth has disappointed in 2025 to date. There are some green shoots with renters and those with a mortgage lifting spending on discretionary items.
The week ahead brings the May labour force release. There are some signs that employment growth could be slowing. The NAB business survey for May saw the employment sub component reach a new cycle low of zero.
Generally this index has a good relationship with employment, albeit particularly in the market sector where employment growth has lagged the non-market sector.
After a strong lift in employment in April of 89k, we expect a more modest lift of 20k in June. An unchanged participation rate of 67.1% would see the unemployment rate remain steady at 4.1%.
Offshore three major central banks meet this week. We expect no change from the FOMC, Bank of England nor the Bank of Japan.
The US FOMC are expected to leave the Funds rate on hold in the near term as the tariff impacts on inflation are monitored. The Bank of England are also expected to leave rates unchanged as inflation and wages growth remain elevated. The Bank of Japan is also expected to leave its policy rate on hold butis expected to taper the pace of bond purchases.
Across the Tasman NZ Q1 25 GDP is released. Our ASB colleagues expect GDP to lift by 0.7%/qtr, stronger than the RBNZ’s forecast of 0.4%. Growth looks largely accounted for by strong primary and manufacturing activity and resilience in parts of the private services sector. Pockets of weakness in the public sector are expected to remain.
In China the monthly activity indicators are released and should show a softness in industrial production in May.
