Consumer sentiment heading into Christmas 2025 tells a nuanced story of households that are cautious and uncertain about the broader economy but not experiencing the kind of financial distress that would prevent seasonal spending entirely.

The Westpac-Melbourne Institute Consumer Sentiment Index for December sits at 82.4, well below the neutral 100 level but actually improved from November’s 79.8. This represents the third consecutive month of modest improvement after sentiment hit its lowest point since the early pandemic in September.

Breaking down the components reveals the source of persistent pessimism. The index measuring expectations for economic conditions over the next 12 months registers just 71.2, indicating consumers expect ongoing weakness. However, the index measuring family finances compared to a year ago sits at 89.6, and expectations for family finances over the next 12 months reach 98.4.

This divergence between general economic pessimism and personal financial stability is notable. Consumers think the economy is struggling but don’t necessarily believe their own circumstances are deteriorating dramatically. It’s a pattern that’s persisted throughout much of 2025.

The unemployment expectations index dropped to 118.5 in December, down from 125.3 in November. Readings above 100 indicate more people expect unemployment to rise than fall, but the declining trend suggests fear about labour market conditions is easing somewhat.

Time to buy a major household item registered 85.2, indicating consumers remain reluctant to make large purchases. This has been consistently weak throughout 2025 and reflects broader caution about discretionary spending. People will make essential purchases but are deferring non-essential upgrades and replacements.

New Zealand’s consumer confidence measured by ANZ-Roy Morgan shows a similar pattern. The index sits at 84.6 in December, up from 81.2 in November but still well below the 100 neutral level. New Zealand consumers are slightly more pessimistic than Australian consumers, which aligns with the relatively weaker economic conditions across the Tasman.

The future conditions component in New Zealand registers particularly weak at 77.3, suggesting Kiwi consumers are quite pessimistic about the year ahead. Current conditions at 94.5 are less negative, indicating that present circumstances aren’t terrible even if the outlook seems challenging.

Inflation expectations provide important insights into how consumers view price trends. Australian consumers expect inflation of 4.3% over the next 12 months according to the December survey, down from 4.8% in mid-2025. This moderation in inflation expectations should eventually support consumer confidence, though the level remains above the 2-3% band that prevailed before 2022.

New Zealand consumers expect inflation around 3.8% over the next year, also showing improvement from earlier 2025 expectations above 5%. The declining inflation expectations in both countries align with actual inflation outcomes and should gradually reduce the pressure consumers feel on living costs.

Housing-related sentiment shows interesting patterns. The time to buy a dwelling index in Australia sits at 72.1, indicating consumers view current conditions as poor for home purchases. This reflects the combination of elevated prices and relatively high mortgage rates making housing less affordable.

However, house price expectations increased in December, with 32% of respondents expecting prices to rise compared to 24% expecting falls. This shift toward expecting price growth rather than declines may actually worsen housing affordability perceptions rather than improving them.

Savings behaviour insights from the sentiment surveys suggest consumers are maintaining or slightly increasing savings rates. Among those whose family finances improved compared to a year ago, more attributed this to increased saving than to higher income. This indicates households are buffering against uncertainty by saving more when possible.

The attitude toward spending versus saving shifted noticeably more conservative during 2025. The proportion of consumers saying “now is a good time to save” increased to 48% while those saying “now is a good time to spend” declined to 28%. This precautionary savings mentality constrains consumption growth.

Regional variations in consumer sentiment are worth noting. Queensland consumers show consistently stronger sentiment than those in New South Wales and Victoria, aligning with Queensland’s relatively better economic performance. Western Australia sentiment also sits above the national average.

In New Zealand, Auckland consumer confidence is slightly weaker than the national average, while Canterbury shows more resilience. The regional patterns align with local economic conditions and labour market outcomes.

Age-related sentiment differences reveal interesting patterns. Younger consumers (18-34) show more optimistic sentiment than middle-aged (35-54) or older consumers (55+). This may seem counterintuitive given younger consumers often face more challenging financial circumstances, but could reflect different baseline expectations or lower exposure to investment losses.

The sentiment impact on actual spending behaviour is complex. Consumer confidence correlates with spending growth but isn’t perfectly predictive. Households with stable incomes often maintain spending even when pessimistic about broader conditions. Conversely, some households reduce spending more than sentiment alone would suggest due to binding constraints like high debt servicing costs.

Looking at the Christmas spending implications specifically, the modest sentiment improvements in recent months suggest holiday retail sales will likely be subdued rather than catastrophic. Consumers are proceeding with gifting and seasonal celebrations but constraining overall budgets more than in previous years.

The outlook for consumer sentiment in early 2026 depends significantly on labour market conditions. If unemployment remains relatively stable, sentiment should gradually improve as inflation continues moderating. However, if unemployment rises meaningfully, sentiment could deteriorate again despite improving inflation.

Interest rate expectations also matter for sentiment. Australian consumers increasingly expect the RBA to cut rates in 2026, which supports confidence. New Zealand consumers similarly expect RBNZ rate cuts, though timing expectations vary.

What the December sentiment readings ultimately suggest is a consumer sector that’s coping rather than thriving. Households are adjusting spending patterns, maintaining necessary consumption, and generally managing to navigate challenging conditions without catastrophic stress for most. It’s not a recipe for strong consumption growth, but neither does it point to consumption collapse.

The disconnect between weak general economic sentiment and more stable personal financial sentiment bears watching. If personal financial conditions begin deteriorating to match the pessimistic economic outlook, consumption could weaken more sharply. For now, that hasn’t occurred, but the risk remains present heading into 2026.