Australian Household Sentiment Hits Fresh Lows as Employment Anxiety Mounts and Rate Worries Persist

Consumer sentiment in Australia has deteriorated further, painting a grim picture of household confidence heading into 2026. According to the latest Westpac survey, the Westpac-Melbourne Institute Consumer Sentiment Index plummeted 1.7% to 92.9 in January—marking another step deeper into pessimistic territory and remaining firmly below the neutral 100-point threshold.

The Numbers Tell a Worrying Story

What’s particularly concerning is where the weakness is concentrated. Assessments of personal finances over the next year dropped 4.5%, while expectations for broader economic conditions fell even more sharply at 6.5%. These aren’t marginal shifts—they reflect a fundamental deterioration in how Australians view their economic future.

The shift in interest rate sentiment is striking. Close to two-thirds of consumers now expect mortgage rates to climb over the coming 12 months, a dramatic jump from just one-third expecting rate hikes back in September. This isn’t mere speculation; it’s reshaping household budgeting and financial planning across the country.

Employment Fears Add to the Pressure

Rising unemployment rate anxiety is adding another layer to consumer distress. The survey captured a notable uptick in households predicting job losses, reflecting growing concerns about the Australian labor market’s stability. As businesses face economic headwinds, workers increasingly worry about their employment security—a concern that directly feeds into lower consumer spending and weaker confidence.

The connection is straightforward: when people fear unemployment and expect higher borrowing costs, they pull back on discretionary spending, which creates a self-reinforcing cycle of weakened economic activity.

Still Above Crisis Lows, But Trending Wrong

To be fair, Westpac noted that consumer confidence, despite this deterioration, remains well above the deep lows witnessed during the 2022-2024 cost-of-living crisis. So we’re not quite in panic territory yet. However, the direction is unmistakably downward.

What’s Next?

Looking ahead, the Reserve Bank of Australia is widely expected to hold rates steady through its February policy meeting and likely maintain that position throughout much of 2026. Whether this pause will be enough to restore consumer confidence remains an open question—particularly if labor market weakness accelerates and rate cut hopes fade entirely.