Westpac Red Book (September 2013)

The Red Book

Westpac Economicswith the InstitutionalBank.

September 2013

© 2013. A division of Westpac Banking Corporation ABN 33 007 457 141

August 2013

The Westpac Red Book is produced by Westpac EconomicsEditor: Matthew HassanInternet: www.westpac.com.auEmail: [email protected]

This issue was fi nalised on 13 September 2013The next issue will be published on 11 October 2013

Contents

Executive summary 4

The consumer mood: election hope 6

Sentiment indicators: spending 8

Special topicAustralian dollar 10

Sentiment indicatorsDurables, cars 12Housing 13Risk aversion 14Job security 15

State snapshot: Queensland 16

Westpac household barometer 18

Summary forecast tablesEconomic & fi nancial forecasts 19Consumer data and forecasts 21

WIB IQ is here.Start receiving your usual Westpac research and strategy reports in a new format from our e-portal WIB IQ.https://wibiq.westpac.com.au

4

September 2013

Executive summary ― The Westpac–Melbourne Institute Index of Consumer Sentiment posted a strong rally in Sep with a 4.7% rise to 110.6, a ‘solidly optimistic’ reading.

― The Federal election on Sep 7 had a pronounced impact on the Sep survey. Although most of the survey was conducted before the result was known, polling and media coverage in the week meant most consumers would have anticipated a Coalition victory. Elections, particularly ones that see a change of government, have seen big sentiment rises in the past, most notably the Coalition’s last election win in 1996. However, these boosts have also tended to dissipate in the months that follow.

― The survey detail shows: a notable rise in sentiment amongst those surveyed on 7-8 Sep; a spike in sentiment for Coalition voters and a slump for ALP voters; and particularly sharp rises in the sub-indexes tracking views on the economic outlook. All of these moves are consistent with a signifi cant ‘election eff ect’.

― Additional questions on the ‘wisest place for savings’ showed a big shift with fewer nominating ‘bank deposits’ and ‘pay down debt’ and a sharp rise in the proportion nominating ‘real estate’.

― Accordingly, the Westpac Consumer Risk Aversion Index, which draws on responses to the ‘wisest place for savings’ question to give a measure of risk aversion, declined sharply by 12.9pts between Jun and Sep. Some of this may be a temporary election-related shift. However, small improvements in previous three quarters, and the mix of low interest rates and a housing upturn suggests it could be part of a sustained

move. If so, that could see lower household savings rates over the next 6mths. However, although the Index was a good predictor of the savings rate between 2001 and 2009 when it was rising, its track record at other times, particularly when the savings rate was in decline, has been much less reliable.

― Our CSI± measure, which includes the Westpac Risk Aversion Index and excludes ‘economic’ components of consumer sentiment, rose 3.2pts in Sep to be up 11.4% from its May low. The Index is at its highest level since Aug 2010 and is consistent with spending growth accelerating from fl at currently to around 3-3½%yr.

― Consumer views on ‘time to buy’ remain very positive. The election appears to have been less of a factor on these measures.

― The Sep survey included an additional question on consumers’ assessments of the recent AUD decline. More consumers saw this as favourable (41%) than unfavourable (22%) confi rming our suspicion that, unlike during sharp currency falls historically, the 2013 decline was seen as a positive rather than a negative.

― The Westpac Melbourne Institute Unemployment Expectations Index declined 6.6% in Sep, an improved outlook for unemployment in the year ahead. However, the improvement is a relatively modest one given the deeply pessimistic starting point. Consumers remain more fearful of a rise in unemployment now than they were in Mar or when the RBA fi rst started cutting rates in Nov 2011.

5

The September Westpac–Melbourne Institute Consumer Sentiment survey was conducted in the week leading into the Federal election and the results have been heavily infl uenced by expectations around a change of Government.

In moves reminiscent of those seen when the Howard government was fi rst elected in 1996, the headline Westpac–Melbourne Institute Consumer Sentiment Index surged into solidly optimistic territory, led by rising expectations for the economy with the eff ects of the political shift apparent through most of the survey detail.

The key question is whether the election acts as a short-lived ‘shot in the arm’ or as a catalyst for a sustained rally. In 1996 the election boost to sentiment had largely dissipated three months later.

There are some hints of a more enduring change this time around. In particular, the ‘wisest place for savings’ question, which is run every three months and arguably less ‘tainted’ by election eff ects, has shown a notable shift with fewer nominating ‘safe’ options (‘bank deposits’, ‘repay debt’) and a clear warming towards real estate.

The implied attitude towards risk is summarised in the Westpac Consumer Risk Aversion Index which declined sharply between Jun and Sep.

That could prove to be a game changer – the Index has, at times, been a good predictor of the household savings rate, particularly when it was rising sharply in 2001-09. It’s performance during other periods has been much less reliable though, particularly when the savings rate has been in decline. Needless to say we will be monitoring the spending and credit data closely to see if a shift is occurring.

However, there are also parts of the survey that remain of great concern. In particular, the Westpac–Melbourne Institute Unemployment Expectations Index, which has been much more pessimistic than sentiment throughout the last two years, posted a less convincing improvement in Sep and is still at a deeply pessimistic level.

Unemployment concerns will clearly still be a factor weighing on consumer demand and restraining the housing upturn. A sustained easing in risk aversion would be good but a big fall in job loss fears would be even better.

-4-3-2-1012345678

-4-3-2-1012345678

Jun-88 Jun-93 Jun-98 Jun-03 Jun-08 Jun-13

ann%ann%real consumer spending real consumer spending per capita

Sources: ABS, Westpac Economics

long run average

Westpac forecasts

qtly%ch

Consumer spending: weak

Westpac Institutional Bank

6

September 2013

The consumer mood: election hope ― The Westpac Melbourne Institute Index of Consumer Sentiment surged 4.7% in Sep from 105.7 in Aug to 110.6. The gain takes the index into solidly optimistic territory slightly above its Mar level and the highest read since Dec 2010.

― The Federal election on Sep 7 was a key factor this month. Although most of the survey was conducted before the result was known, a Coalition victory would have been widely anticipated given polling and media coverage during the week. Notably, responses collected on the last two days (Sep 7 & 8) showed a further surge in sentiment although the sample is too small to form a statistically valid reading.

― The election complicates the Sep sentiment reading. It makes it diffi cult to determine how much of the surge is election-related and how much is due to other factors. Moreover, to the extent that the election is driving the surge, it is unclear how much of this is temporary and how much may be part of a sustained rise.

― Previous elections have given a clear boost to sentiment, particularly when there is a change of government. Sep’s 4.7% rise is similar to the 6.5% surge when the Coalition replaced the ALP government in Mar 1996 (bearing in mind that all of the 1996 survey was run post election). Nearly all of that lift had dissipated by mid-1996.

60

70

80

90

100

110

120

130

60

70

80

90

100

110

120

130

Sep-83 Sep-88 Sep-93 Sep-98 Sep-03 Sep-08 Sep-13

indexindexSources: Melbourne Institute, Westpac Economics

long run average

7-8 Sep

60

80

100

120

140

60

80

100

120

140

74 75 77 80 83 84 87 90 93 96 98 01 04 07 10 13

indexindex1mth before election month* 3mths after Sources: Westpac, Melbourne Institute

+5.1%

+5.2%

+6.5% +1.8% +4.7%

*red bars indicate change of Government

2. Consumer sentiment: elections

1. Consumer sentiment: strong rally

7


― The Sep survey detail also carries echoes of 1996. Confi dence jumped amongst Coalition voters (+19% cf 25% in 1996) and slumped amongst ALP voters (–10% cf –17% in 1996). Component-wise, the strongest gains were around views on the economic outlook. These components jumped 12.8% in Mar 1996.

― Extra questions on consumers’ news recall off er more insight. The proportion viewing news as favourable vs unfavourable improved across all topic areas with the highest recall around news on ‘the economy’ and ‘Budget and taxation’. In most cases this was from a deeply negative starting point to a less negative assessment.

― The Sep survey also showed a notable shift in responses on ‘wisest place for savings’ that implies a sharp decline in risk aversion (see p14). While some of this may again be election-related it follows incremental improvements in Q1 and Q2 and likely refl ects lower interest rates and the housing upturn as well.

― Households’ unemployment expectations are still the main area of concern. These improved in Sep but remain at pessimistic levels by historical standards. Australians are still more concerned about rising unemployment than they were in Mar and are more concerned than when the RBA fi rst started cutting rates in Nov 2011.

5060708090100110120130140

5060708090

100110120130140

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

indexindexWestpac-MI Consumer Sentiment IndexWestpac-MI Consumer Unemployment Expectations Index*Westpac Risk Aversion Index*

Source: Melbourne Institute, Westpac Economics

all indexes re-based to Jan-07*scaled to be on the same basis as consumer sentiment

since RBA easing cycle began:

–2.3%

+13.8%+17.6%

0

20

40

60

80

0 50 100 150 200

%recall*

interest ratesBudget & taxeconomyunemploymentoverseas

Sources: Westpac Economics, Melbourne Institute

unfavourable favourable high recall

low recall

*bubble size also shows level of recall

Observations: 1: Jun-132: Sep-13

4. Consumer recall: selected news items

3. Consumer sentiment, job security & risk aversion

8

September 2013

Sentiment indicators: spending ― While the Sep rise in sentiment was centred on ‘economic outlook’ questions that show less of a link with actual spending, the mix was still very positive for near term demand prospects.

― Our CSI± composite, which combines the Consumer Sentiment sub-indexes with the closest links to spending (those on ‘family fi nances’ and ‘time to buy a major item’) with the Westpac Risk Aversion Index, rose 3.2% in Sep to be up 11.4% from its May low. The index is at its highest level since Aug 2010 and is pointing to a pick-up in per capita spending growth to around 1¾%yr – a 3-3½%yr pace for total spending.

― That would be a marked rise on current spending. The Q2 national accounts showed consumption up just +0.4%qtr, +1.8%yr – the slowest annual pace since the GFC and fl at in per capita terms. It also painted a discouraging picture on incomes and savings behaviour.

― Real labour income growth continued to slow abruptly (+0.7%yr) and although the impact on disposable incomes was cushioned by lower interest rates, households continued to pare back spending in favour of increased savings (the savings ratio hit 10.8%). This suggests households with a mortgage are maintaining debt repayments despite lower interest rates.

-4-3-2-101234567

-30

-20

-10

0

10

20

30

Jun-93 Jun-95 Jun-97 Jun-99 Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13

ann%indexCSI (lhs)* consumer spend (rhs)^

Source: Melbourne Institute, ABS, Westpac Economics

±

*consumer sentiment plus risk aversion minus economic questions, devn from long run avg, smoothed, adv. 6mths;^real, per capita

Westpac forecast

-4

-2

0

2

4

6

8

10

-30

-20

-10

0

10

20

30

Jun-93 Jun-98 Jun-03 Jun-08 Jun-13

ann%indexCSI (lhs)* real retail sales per capita (rhs)

Source: Melbourne Institute, ABS, Westpac Economics

±

*consumer sentiment plus risk aversion minus economic questions, deviation from long run avg, smoothed

Westpac forecast

6. CSI± vs retail sales

5. CSI± vs total consumer spending

9


― The Q2 expenditure detail also showed clear signs that consumers are cutting back on discretionary spending. The main exception continues to be spending on vehicles which rose 3.3% in Q2 to be up 8.1%yr. Latest monthly sales suggest this segment, which in the past has been a bellwether for discretionary spending, has continued to hold up in Jul-Aug.

― Other monthly indicators of ‘cyclical’ spending have been more mixed. Retail sales barely rose in Jul (+0.1%mth) but showed a 1.8% ‘pop’ in household goods retail (‘big ticket’ discretionary) with fl at sales for cafes & restaurants (‘small ticket’ discretionary).

― Business surveys are showing little improvement. The NAB business confi dence measure posted a solid 9pt rise in Aug – in anticipation of the Sep election result – but business conditions remained weak. Retailers reported basically no change compared to Q2 while those in the ‘consumer services’ sector reported only a modest improvement (the AiG PSI suggests conditions have instead softened).

― The Sep improvement in unemployment expectations suggests the downswing in cyclical spending may be starting to bottom out. A swing into a sustained upturn though would require a further substantial easing in job loss fears.

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10

12

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2

4

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8

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12

1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6

$bn$bnSource: ABS, Westpac-Melbourne Institute

2012Q3 2012Q4 2013Q1 2013Q21. labour income2. other income3. interest payments4. tax & other payments5. savings6. spending

*grey indicates net boost to incomes & spending, red indicates a net draglabour income

stalled (avg+$1.2bn/qtr vs $3bn/qtr prev4qtrs)

... but offset by higher saving (avg 0.4bn/qtr)rate cuts ‘adding’

$0.7bn/qtr ...

80

100

120

140

160

180

200-2.0-1.5-1.0-0.50.00.51.01.52.0

Jun-78 Jun-83 Jun-88 Jun-93 Jun-98 Jun-03 Jun-08 Jun-13

index%ch

consumer spend 'cyclical' (lhs)*job security (rhs)^

Sources: ABS, Melb. Institute, Westpac

major downturns

*most cyclical components of spending, per capita, trend, qtly%ch, ûnemp. expectations, smoothed

8. Job security and cyclical consumer spend

7. Household disposable income changes decomposed

10

September 2013

Special topic: AUD decline ― One of the questions about consumers over the last few years has been around their views on the currency. In the past, moves in the AUD seemed to have a fairly straightforward relationship with sentiment, with rises positive and falls negative.

― We suspect there are three main ways the AUD infl uences sentiment: as a proxy for investors’ perceptions about the Australian economy; via the impact on purchasing power; and via the impact on the competitiveness of Australian businesses. The currency’s surge above parity in 2011 may have seen the competitiveness channel become more prominent for sentiment.

― To get at this question, the Sep consumer sentiment survey included an extra question on consumers’ views on the AUD decline this year from around 105¢ US in Apr to around 90¢ currently. The fi ndings are intriguing and do suggest, in contrast to the past, the high AUD has been viewed as a negative and the latest decline as a positive.

― Of those off ering an opinion, 41% said the AUD decline was favourable, 36% viewed it as ‘neutral’ and 22% said it was unfavourable. The fairly clear implication is that consumers’ reactions to currency moves depend not only on the scale of the move but the overall level.

0

10

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30

40

50

60

0

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60

Aus NSW Vic Qld SA WA

net%net%favourable neutral unfavourable

Source: Westpac-Melbourne Institute

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10

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30

40

50

60

0

10

20

30

40

50

60

Aus 18-24 25-34 35-44 45-49 50-54 55-64 65+ male female rent mort. own

net%net%favourable neutral unfavourable

age housinggender

10. Consumers’ assessment of AUD decline: selected groups

9. Consumers’ assessment of AUD decline

11


― Looking at the detailed responses, there were ‘net favourable’ reads across all sub-groups. Consumers in SA reported the highest ‘net favourable’ reading, refl ecting the importance of the state’s trade-exposed non-mining sectors (agriculture, wine-making and manufacturing). Consumers in WA reported the lowest ‘net favourable’ read, likely refl ecting the linkage between the AUD move and fortunes in the mining sector, which dominates the state.

― Interestingly, there was a big gender gap on the issue with men viewing the decline much more favourably. Women may be more attuned to the impact of the currency on purchasing power.

― Presumably for similar reasons, those in younger age-groups viewed the AUD decline less favourably than older Australians, a pattern also refl ected in the wedge between renters and homeowners. The ‘purchasing power’ channel appears to be an important point of distinction with those more inclined to travel overseas or make online purchases from websites abroad showing a less positive view on the AUD decline.

― Separate questions on news recall suggest the AUD decline has been viewed much more favourably by consumers than similar falls in the past, perhaps to the point of being a small positive for sentiment overall.

050100150200250300350400

-60-45-30-15

015304560


%%

Source: Westpac –Melbourne Institute

0

30

60

050

100150

long post-float slide,‘banana republic’ quote

early 90s recession

Asian crisis

2000 slump to sub-50¢

GFC 2013 ‘mini slide’

AUD makes rise above USD parity

45

15

proportion recalling news

news favourable/unfavourable

-15

0

15

30

45

60

75

-80

-40

0

40

80

120

160

Jun-85 Jun-88 Jun-91 Jun-94 Jun-97 Jun-00 Jun-03 Jun-06 Jun-09 Jun-12

indexindex

Source: RBA, Westpac –Melbourne Institute

mth%ch following AUD ‘event’

160

120

80

40

15

0

-15

periods of secular AUD decline

AUD news recall: net favourable (period avg)

markers show sharp AUD falls/new lows

avg: -1.0%

12. Consumer sentiment and the AUD

11. Consumer recall: AUD news

12

September 2013

Sentiment indicators: durables, cars ― The sub-index tracking views on ‘time to buy a major household item’ rebounded strongly in Sep, rising 6.9% to recover most of the 7.1% decline through Jul-Aug. The sub-index is back in fi rmly positive territory, 4.5pts above its long run average though still 10pts off its Feb high.

― The Q2 national accounts detail on consumer spending was mixed for spending on major household durables. Spending on furniture and household appliances posted a second strong quarterly gain in a row but spending on recreational goods and ‘small renovations’ was fairly fl at, the latter despite a solid 2% bounce in total renovation spending.

― The sub-index tracking views on ‘time to buy a vehicle’ rose 1.9% to 133.4, sustaining well above the long run average of 122.5.

― The sub-index has held its ground well given the sharply lower AUD and announced changes to fringe benefi t tax (FBT) concessions. The AUD move may not be impacting sentiment yet as local car prices are yet to refl ect the decline. Similarly the election may have neutralised the FBT impact with the incoming Coalition government committed to reversing the changes. Meanwhile actual sales are holding up well with consumer purchases up 3.1% in Aug to be up 10.3%yr.

-18-15-12-9-6-30369121518

-70-60-50-40-30-20-10

010203040

Sep-89 Sep-94 Sep-99 Sep-04 Sep-09 Sep-14

%annindex*

time to buy a major item (lhs)*spending: 'major household items' (rhs)^

Sources: Melbourne Institute, ABS, Westpac Economics

*deviation from long run average, smoothed, adv 3qtrs^real per capita spend on furniture, appliances & renovations <$10k

last 6mthsann’d

GST introduction

-30

-20

-10

0

10

20

30

-40-30-20-10

010203040


ann%indextime to buy a car (adv. 6mths, lhs)purchase of vehicles (rhs)*

Sources: ABS, Melbourne Institute, Westpac Economics *real per capita, national accounts measure

qtly

Japanesesupplyshock

GST (lowered car prices)

14. ‘Time to buy a car’ vs vehicle purchases

13. ‘Time to buy a major item’ vs major durables spend

13


― The sub-index tracking views on ‘time to buy a dwelling’ jumped 6.5% to 145.0, its highest level since Aug 2009.

― Although there may be some residual election ‘feel-good eff ect’ in the Sep rise, the evidence is mixed on election boosts to this sub-index historically. Certainly the 1996 election produced no change. That would suggest the Sep rise may be more about the clear signs of strength now starting to emanate from Australia’s housing markets. Auction clearance rates in particular have risen sharply to decade highs in Sydney. Price growth is also starting to quicken.

― That said, the upturn in housing fi nance approvals has been more restrained to date. These show solid but not spectacular growth vis a vis 2002 or 2009-10. Performances remain uneven across segments (fi rst home buyers very weak) and states (lagging in Vic in particular).

― The fi nance data is only to Jul and may be understating the housing upturn which appears to have strengthened through Jul-Sep. However, it is consistent with our model of fi nance approvals based on the ‘time to buy a dwelling’ and ‘unemployment expectations’ indexes. This implies job security has been a major restraining factor and one that is critical to the outlook.

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-60

-30

0

30

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-90

-60

-30

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60

Sep-75 Sep-80 Sep-85 Sep-90 Sep-95 Sep-00 Sep-05 Sep-10

indexindex

time to buy dwellingunemployment expectations (inverted)

Source: Westpac – Melbourne Institute

*deviation from long run average, smoothed

-50-40-30-20-100102030405060

-50-40-30-20-10

0102030405060

Jul-83 Jul-88 Jul-93 Jul-98 Jul-03 Jul-08 Jul-13

ann%ann%simple regression on 'time to buy dwelling' and unemp expectationshousing finance approvals ex refi (number, trend)

Source: ABS, Westpac*9mth projection assumes no change in sentiment measures

16. Model of housing fi nance approvals

15. ‘Time to buy a dwelling’ & job security

Sentiment indicators: housing

14

September 2013

Sentiment indicators: risk aversion ― The Sep survey included an update of questions on the ‘wisest place for savings’ used to construct the Westpac Consumer Risk Aversion Index. The results are perhaps the most promising aspect of the survey, showing a signfi cant easing in risk aversion.

― The big move was away from bank deposits (–4.6ppts) and ‘pay down debt’ (–2ppts) and towards real estate (+2.9ppts) to a lesser extent shares (up 0.4ppts). The net eff ect produced a big 12.9pt decline in the Westpac Consumer Risk Aversion Index from +29 in Jun to +16.1 in Sep. That follows a 12.9pt decline over the previous three quarters.

― Some of the Sep move may be a temporary election-related shift. There were similar improvements around the elections in 1996 and 2007 that were not sustained. However, the latest move is coming after an improvement over the previous three quarters and against a backdrop of a low interest rates and a gathering upturn in the housing market. Accordingly it may represent a more fundamental, sustained shift.

― If so, that could see lower household savings rates over the next 6mths. Although the Index was a good predictor of savings betwen 2001 and 2009 its broader track record is more mixed, particularly when savings rates decline.

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%%

shares real estate deposits/super repay debt*

Sources: Westpac, Melbourne Institute

seasonally adjusted by Westpac*’repay debt’ and ‘super’ options only included from 1997

-6

-1

4

9

14

19

-30

-10

10

30

50

70

Sep-95 Sep-97 Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13

%%Westpac consumer risk aversion index (lhs)*household savings rate (rhs)

Sources: ABS, Westpac, Melbourne Institute

*% nominating 'pay down debt' or interest bearing assets as wisest place for savings minus % nominating real estate or shares; advanced 2qtrs

Federal elections; qtr before and qrr after

18. Westpac Risk Aversion Index

17. Consumers: ‘wisest place for savings’

15


― The Westpac-Melbourne Institute Unemployment Expectations Index declined 6.6% in Sep marking a signifi cant improvement (a fall in the index means fewer consumers expect unemployment to rise over the year ahead).

― While positive, the Sep move still leaves the index at a high (i.e. fearful) level. Unemployment expectations have merely retraced the deterioration between Apr and Aug. With some of the Sep result likely to be a temporary election-related improvement and offi cial data showing weak labour market conditions in Aug job loss fears will remain an issue near term.

― The Index’s history around elections is ambiguous. While most seem to have had only a minor impact, there was a very clear reaction to the 1996 election with the index falling 19.2% in Mar 1996 but snapping back sharply in Apr (+27.1%). Clearly, to the extent that an election result boosts hopes around jobs, these can be very diffi cult to fulfi l.

― The potential for a reversal clearly makes the next few monthly reads very important. There is potential for some improvement – actual hours worked for example are rising at an above-trend pace in the non-mining states – but we would be surprised if concerns were to suddenly ease.

-2.5

-1.5

-0.5

0.5

1.5

2.5

-3

-2

-1

0

1

2

3

4

Aug-93 Aug-95 Aug-97 Aug-99 Aug-01 Aug-03 Aug-05 Aug-07 Aug-09 Aug-11 Aug-13

ppts^std devnsunemployment expectations (lhs)*unemployment rate (ann ch, rhs)

Sources: ABS, Westpac-Melbourne Institute

*shown as std devn from long run avg, adv. 4 mths Federal elections; qtr

before and qrr after

-4-3-2-101234

-4-3-2-101234

Aug-97 Aug-01 Aug-05 Aug-09 Aug-13 Aug-97 Aug-01 Aug-05 Aug-09 Aug-13 Aug-17

st devnst devnunemployment expectations*hours worked, ann change


std devns from long run avg*smoothed

‘non-mining’ states ‘mining’ states

20. Unemployment expectations, hours worked by state

19. Unemployment: actual vs expected

Sentiment indicators: job security

16

September 2013

State snapshot: Queensland ― Qld consumers posted an 8.2% jump in sentiment in Sep but remain more pessimistic than the rest of the nation. That gap comes down to more pessimistic views on family fi nances and ‘time to buy a major item’. Indeed, Qld’ers are more optimistic on the economic outlook than the rest of the nation for the fi rst time since early 2012 when the mining boom was still in full swing.

― The detail shows some interesting sub-plots around housing and jobs. Qld’ers are more bullish on ‘time to buy a dwelling’ than the rest of the nation, despite Qld’s housing market struggling more than most in recent years.

― On the unemployment outlook though, Qld’ers are considerably more fearful with unemployment expectations at 150 vs 141 across the rest of Australia. The mix may explain the state’s more sluggish housing recovery – a better aff ordability mix giving buyer attitudes more of an uplift but a shakier labour market outlook acting as more of a restraint on actual buyers.

― Resposes on ‘wisest place for savings’ questions also show a warming towards ‘real estate’ although Qld’ers are a touch more risk averse than the rest of the nation, showing a stronger inclination towards bank deposits.

60708090100110120130140

60708090

100110120130140


indexindexQld rest of Aus


*smoothed

sentiment finances^âvg of ‘family finances vs a year ago’ and ‘family finances next 12mths’

economy^âvg ‘economic outlook ’ next 12mths and next 5yrs

50

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130

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indexindexQld rest of Aus


*smoothed

major item unemp expnsdwelling

22. Consumer views on ‘time to buy’ & jobs: Qld vs Aus

21. Consumer sentiment, fi nances & economy: Qld vs Aus

17


Westpac household barometer ― The Westpac Household Barometer draws on a range of data – including system-wide credit and debit card usage from the RBA, and the mortgage repayment behaviour and credit card usage of Westpac customers – to give a broad proxy for consumers’ fi nancial behaviour.

― The Barometer continues to provide a ‘contra’ indicator to the Westpac Risk Aversion Index, oscillating around a steady trend rise over the last six months. The Barometer rose 0.9pts between Aug 2012 and Mar 2013, retracing 0.6pts of that between Mar and Jun but nudging up by another 0.2pts since then to be up a net 0.5pts since Aug last year.

― RBA fi gures on system-wide credit and debit card usage show a rebound from Q1’s very weak reading. Annual growth in the real value of card transations dropped to just 1.5% in the fi rst three months of the year, the slowest pace on records back to 1995 (bearing in mind that growth through most of this period was very strong due to the pick up in card usage as a medium for transactions). Annual growth has since recovered, rising back to 5.6%yr as at Jul.

― The mix of card usage however has been slightly more ‘conservative’ over the last two months with the mix tilting back from credit to debit cards, the latter accounting for 42.6% of total.

-202468101214

97.5

99.0

00.5

02.0

03.5


%index

Westpac household barometer (lhs)*household savings ratio (rhs)

Source: RBA, Westpac Group

*based on: card transactions, mortgage prepayments; credit card usage; and card debt repayment behaviour

more conservative

less conservative

303234363840424446

303234363840424446

Jul-03 Jul-05 Jul-07 Jul-09 Jul-11 Jul-13

ann%%

Source: RBA, ABS, Westpac

*debit card purchases as % of all card transactions, smoothed

initial onset of ‘cautious consumer’

increased use of debit vs credit

decreased use of debit vs credit

24. Card transactions: credit vs debit

23. Westpac household barometer

18

September 2013

Economic and fi nancial forecastsInterest rate forecasts

Latest (13 Sep) Dec 13 Mar 14 Jun 14 Sep 14 Dec 14

Cash 2.50 2.25 2.00 2.00 2.00 2.00

90 Day Bill 2.58 2.30 2.10 2.10 2.10 2.10

3 Year Swap 3.24 2.80 2.70 2.70 2.90 3.20

10 Year Bond 4.09 3.60 3.30 3.40 3.50 3.70

10 Year Spread to US (bps) 115 100 90 80 75 90

International

Fed Funds 0.125 0.125 0.125 0.125 0.125 0.125

US 10 Year Bond 2.93 2.60 2.40 2.60 2.75 2.80

US Fed balance sheet USDtrn 3.70 3.99 4.23 4.47 4.71 4.95

ECB Repo Rate 0.50 0.50 0.50 0.50 0.50 0.50

Exchange rate forecastsLatest (13 Sep) Dec 13 Mar 14 Jun 14 Sep 14 Dec 14

AUD/USD 0.9250 0.92 0.92 0.90 0.87 0.85

NZD/USD 0.8120 0.82 0.83 0.81 0.78 0.76

USD/JPY 99.80 98 97 96 95 94

EUR/USD 1.3280 1.31 1.31 1.28 1.23 1.20

AUD/NZD 1.1390 1.12 1.11 1.11 1.12 1.12

Sources: Bloomberg, Westpac Economics.

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Economic and fi nancial forecasts


Australian economic growth forecasts2013 2014

Q4 Q1 Q2f Q3f Q4f Q1f Q2f

GDP % qtr 0.7 0.5 0.6 0.5 0.6 0.5 0.6

Annual change 3.3 2.5 2.6 2.3 2.2 2.2 2.2

Unemployment rate % 5.4 5.5 5.6 5.8 6.0 6.4 6.4

CPI % qtr 0.2 0.4 0.4 1.0 0.3 0.6 0.6

Annual change 2.2 2.5 2.4 2.0 2.2 2.4 2.6

CPI underlying % qtr 0.6 0.4 0.5 0.6 0.6 0.6 0.7

ann change 2.4 2.4 2.4 2.1 2.2 2.3 2.5

Calendar years

2011 2012 2013f 2014f

GDP % ann change 2.4 3.7 2.5 2.3

Unemployment rate % 5.2 5.4 6.0 6.5

CPI % ann change 3.0 2.2 2.2 2.7

CPI underlying % ann change 2.8 2.4 2.2 2.6

Calendar year changes are (1) period average for GDP, employment and unemployment, terms of trade (2) through the year for inflation and wages. * GDP & component forecasts are reviewed following the release of quarterly national accounts.** Business investment and government spending adjusted to exclude the effect of private sector purchases of public sector assets.

20

September 2013

Consumer demand2013 2014

% change Q1 Q2 Q3f Q4f Q1f Q2f Q3f Q4f

Total private consumption* 0.7 0.4 0.7 0.7 0.7 0.7 0.8 0.8

annual chg 2.1 1.8 2.3 2.5 2.5 2.8 2.9 3.0

Real labour income, ann chg -0.3 0.7 1.2 0.4 0.8 0.2 0.8 1.3

Real disposable income, ann chg** 2.9 2.2 2.3 2.0 2.1 2.0 2.2 2.4

Household savings ratio 10.5 10.8 10.6 10.3 10.3 10.2 10.0 9.8

Real retail sales, ann chg 3.5 2.0 2.5 2.8 1.6 2.4 3.0 3.6

Motor vehicle sales (‘000s)*** 893.8 902.0 808.2 836.0 840.2 848.6 865.6 882.9

annual chg 4.2 3.3 -8.6 -8.3 -6.0 -5.9 7.1 5.6

Calendar years

2011 2012 2013f 2014f

Total private consumption, ann chg* 3.3 3.2 2.2 2.8

Real labour income, ann chg 4.5 3.7 0.6 0.9

Real disposable income, ann chg** 4.3 2.4 2.4 2.2

Household savings ratio, % 10.8 10.3 10.6 10.2

Real retail sales, ann chg 0.5 3.2 2.7 2.7

Motor vehicle sales (‘000s) 806.1 881.6 860.0 895.0

annual chg -2.7 9.4 -2.4 4.1

Notes to pages 20 and 21:* National accounts definition.** Labour and non–labour income after tax and interest payments. *** Passenger vehicles and SUVs, annualised^ Average over entire history of survey. ^^Seasonally adjusted. # Net % expected rise next 12 months minus % expecting fall (wage expectations is net of % expecting wages to rise and % expecting flat/decline).Note that questions on mortgage rate, house price and wage expectations have only been surveyed since May 2009.

Consumer data and forecasts

21

Consumer data and forecasts


Consumer sentiment 2012 2013

% change avg^ Dec Jan Feb Mar Apr

Westpac–MI Consumer Sentiment Index 101.8 100.0 100.6 108.3 110.5 104.9

family finances vs a year ago 89.8 85.2 77.8 83.5 86.8 83.4

family finances next 12 months 108.5 104.8 103.5 105.0 108.2 108.0

economic conditions next 12 months 90.5 92.4 95.0 108.9 109.8 104.9

economic conditions next 5 years 91.0 88.2 91.1 101.0 107.1 98.2

time to buy major household item 128.0 129.6 135.7 143.1 140.8 130.2

time to buy a motor vehicle 122.5 138.4 146.8 140.7 142.5 138.0

time to buy a dwelling 123.3 142.2 140.0 135.4 144.5 128.4

Westpac–MI Consumer Risk Aversion Index^^ 11.6 31.0 – – 32.5 –

CSI± 103.5 97.1 96.4 99.9 100.8 97.6

consumer mortgage rate expectations# 42.5 – – 11.2 – –

consumer house price expectations# – – 26.7 – – 53.9

consumer wage expectations# -25.9 – – – -27.3 –

Westpac–MI Unemployment Expectations 128.3 154.5 144.9 145.1 139.7 141.5

128.1 2013

continued May Jun Jul Aug Sep

Westpac–MI Consumer Sentiment Index 97.6 102.2 102.1 105.7 110.6

family finances vs a year ago 76.7 83.2 78.6 88.8 87.1

family finances next 12 months 100.5 105.9 103.0 113.0 114.8

economic conditions next 12 months 90.8 94.3 95.1 100.3 109.0

economic conditions next 5 years 91.4 94.3 103.0 102.5 109.8

time to buy major household item 128.5 133.3 131.1 123.9 132.5

time to buy a motor vehicle 139.7 138.4 124.2 130.9 133.4

time to buy a dwelling 142.7 143.3 131.3 136.2 145.0

Westpac–MI Consumer Risk Aversion Index^^ – 29.0 – – 16.1

CSI± 93.9 98.3 97.0 101.3 104.6

consumer mortgage rate expectations# – 8.7 – 17.4 –

consumer house price expectations# – – 46.9 – –

consumer wage expectations# – – – – –

Westpac–MI Unemployment Expectations 149.1 158.5 152.8 152.7 142.6


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Disclaimer

23

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Disclaimer

24


Notes

Notes

26

27

Westpac EconomicsSydneyLevel 2, 275 Kent StreetSydney NSW 2000Telephone (61–2) 8254 8372Facsimile (61–2) 8254 6907

Bill EvansChief Economist Global Head of Economics & Research

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Documents

Westpac Red Book (September 2013)