Belinda Allen, CBA’s Head of Australian Economics, believes that the Reserve Bank of Australia (RBA) will only cut the official cash rate (OCR) once more in November, given the recent stronger run of economic data. This would take the OCR to 3.35%, which is close to CBA’s estimate of neutral. Market pricing has also shifted higher, with less easing now expected.
Allen highlights seven key pieces of economic data that collectively confirm an economic recovery is becoming entrenched in the Australian economy.
**1. S&P Composite PMIs Have Shifted Higher**
Historically, the composite PMI tracks final demand in the economy quite well, Allen notes. Overall, it suggests that the economy should continue to improve from here. A closer look at the details shows new orders and the employment components have both moved higher, pointing towards further improvement in economic momentum in the September quarter. Australia also has the highest PMI index among a number of advanced economies, indicating a positive change of fortunes in recent months.
**2. Westpac/MI Consumer Sentiment Index Trends Higher**
The Westpac/MI consumer sentiment index has shown a steady upward trend, reflecting growing confidence among Australian consumers.
**3. NAB Business Survey Shows Reversion to Trend**
The NAB business survey indicates a return to long-term averages. The conditions index is currently sitting around its historical average, as is business confidence, Allen noted. Improvements in employment, profitability, and trading all suggest an economy growing close to its potential. Capacity utilization has also picked up, reinforcing the momentum in the economy.
**4. Australia’s GDP Growth Has Picked Up**
GDP growth printed stronger than consensus and the RBA’s forecasts in the second quarter. Importantly, the data confirmed a transition from public to private sector-led growth is underway. Household consumption played a significant role, with a 0.9% increase in the quarter, taking the annual growth rate to 2.0%. At a 1.8% per year growth rate, the economy is closing in on the RBA’s estimate of potential growth at 2%. CBA expects economic activity to improve further to 2.3% in 2026.
**5. Consumer Spending Data Firmed**
Reflecting the improving economy, CBA’s consumer spending data has also shown firming trends.
**6. July CPI Surprises to the Upside**
The July Consumer Price Index (CPI) printed higher than expected at 2.7% year-on-year, with the headline rate at 2.8% compared to expectations of 2.3%. Advertised rents ticked higher again, and new dwelling construction costs have increased in three of the past four months, Allen noted.
**7. Transition from Non-Market to Market Jobs**
Allen observes a shift from non-market to market sector jobs. In Q2 2025, total filled jobs growth increased by 0.2%, translating to a 1.7% rise through the year. Non-market sector jobs rose by 0.3% (+14,000), while market sector jobs rose by 0.2% (+22,000). Annual growth was +3.6% (+168,000) for non-market jobs and +0.9% (+103,000) for market jobs.
So far, the market sector has absorbed most, but not all, of the employment slack. Allen notes that the relationship between private final demand and market sector employment suggests reason for optimism for an orderly handover.
**A Note of Caution**
However, my main contention with Allen’s view is the strong risk that the transition from non-market to market sector jobs may not be as smooth as anticipated. Continued monitoring of labor market dynamics will be crucial in assessing the sustainability of Australia’s economic recovery.
https://www.macrobusiness.com.au/2025/09/aussie-rate-cut-hopes-fade/