WestpacRedBookAugust2013.pdf

7/27/2019 WestpacRedBookAugust2013.pdf

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The Red Book

Westpac Economics with theInstitutionalBank.

August 2013


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


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August 2013

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

This issue was nalised on 16 August 2013

The next issue will be published on 13 September2013

Contents

Executive summary 4

The consumer mood: rate cut bump 6

Sentiment indicators: spending 8

Special topicInterest rate expectations 10

Sentiment indicatorsDurables, cars 12Housing 13Risk aversion 14

Job security 15

State snapshot: Victoria 16

Westpac household barometer 18

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

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


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August 2013

Executive summary The WestpacMelbourne Institute Index of Consumer Sentiment rose 3.5% in Aug liftingthe Index from the faintly optimistic 102.2reading in Jul to a more rmly optimistic readingof 105.7.

The survey detail clearly shows the RBAs Augrate cut was behind the gain. Survey responsesafter the decision, which occurred duringthe survey week, show a big improvement,particularly around views on family nances.While the initial rate cut reaction fromsentiment is a decent one, it remains to be seenhow well the lift is sustained.

Other factors such as the announcement of anelection date, an Economic Statement showinga further deterioration in the Governmentsnances, and the sustained decline in the AUDappear to have had little impact on sentimentoverall. That said, the detail suggests thesefactors may have had an inuence on specicsub-indexes and on sentiment in particular sub-groups.

CSI, our modied consumer sentimentindicator which we favour as a guide tospending momentum, posted a similar3.4% gain. It continues to point to subduedmomentum consistent with per capita spendinggrowth in the 0-%yr range (1-2%yr rangeonce population growth is included).

Available data on sales and surveyed businessconditions point to continued weakness in Q2,particularly across the retail sector. Althoughvehicle sales, fuel sales and passengermovements point to some offsetting positives,we expect the Q2 national accounts to showanother weak read with total consumerspending up 0.4%qtr and annual growth slowingto 1.7%yr.

The Aug survey included an additional questionon consumers mortgage interest rateexpectations. Responses show 41% expect ratesto rise, 36% expect no change and 23% expectrates to fall, the latter shrinking to 19% acrossthose surveyed after the RBA cut rates. Whilethere is no majority view on the direction formortgage rates, more expect them to rise or beunchanged than to fall.

The sub-index tracking views on time to buya major household item declined 5.5% in Augto be off 13.4% since Mar. We suspect most,if not all, of this is linked to the decline in theAUD the parity premium that reected thecheapness of imported goods rather than anintent to buy seems to be nally coming out ofthis sub-index.

The sub-index tracking views on time to buya vehicle rose 5.4%, recovering half of its Julfall. The index is off its highs of earlier in theyear but remains above average. Actual carsales have yet to register the full impact ofthe announced changes to fringe benet taxarrangements.

The sub-index tracking views on time to buy adwelling rose 3.7%, only recovering part of Juls8.4% drop. Buyer attitudes continued to weakenrapidly in WA, suggesting the mining downturnmay be starting to impact.

The Westpac-Melbourne InstituteUnemployment Expectations Index wasunchanged in Aug but remains at a high levelindicating widespread expectations of a rise inunemployment. Job loss fears remain intenseand are showing a notable escalation in theresource states.


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The RBAs decision to cut the cash rate by25bps at its Aug 6 meeting produced analmost text-book example of a rate cutbump to consumer sentiment. The WestpacMelbourne Institute Consumer SentimentIndex rose 3.5% from 102.2 to 105.7.

Descriptively, the move takes the Index fromfaintly optimistic to somewhat more rmlyoptimistic territory. It falls well short of abreakout though. Indeed, our fear is that itmay prove to be a short-lived sugar hit.

The impact of the rate move is clear in theresponses over the course of the survey

week (sentiment readings were 5.3% higherafter Aug 6) and the composition of theimprovement (led by a big improvement inviews on family nances).

In contrast to May, the sentiment impact of the cut was not gazumped by scal news.While the Budget helped knock sentiment7% lower in May, there seemed to be littleimpact on headline sentiment from the scaldeterioration reported in the Governments

Economic Statement in Aug (although themore granular detail suggests this and theAUD decline may have had some inuence inspecic areas).

While the sentiment response to the Augrate move has been decent, history showsthe initial boost tends to be followed bysubsequent partial payback. Meanwhile,other aspects of the Aug survey look alittle more fragile. Responses on time tobuy questions were mixed in the monthbut continue to show a cooling off from thestrong readings seen earlier in the year.

Consumers unemployment expectationsremain our main concern. These showed nochange in Aug, holding at very weak levels.Australian consumers continue to bracefor a signicant rise in unemployment witha notable deterioration in expectationsoccurring across the resource states.

The Sep survey will give us a better senseof how durable the rise in sentiment is.It will also provide a key update on thewisest place for savings question that givesimportant insights into risk aversion.

We continue to expect further rate cutsfrom the RBA, with 25bp moves in Nov and

Feb. While these are likely to be triggeredby developments in the business sector andabroad, how consumers react to these ratemoves will also be important.

-4-3-2-1012345678

-4-3-2-1012345678

Mar-88 Mar-93 Mar-98 Mar-03 Mar-08 Mar-13

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

Sources: ABS, Westpac Economics

long runaverage

Westpacforecasts

qtly%ch

Consumer spending: stalled

Westpac Institutional Bank


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August 2013

The consumer mood: rate cut bump The Westpac Melbourne Institute Index of Consumer Sentiment rose 3.5% in Aug from102.1 in Jul to 105.7. This is the highest readsince the surge in Feb-Mar and, prior to that,since Feb 2011. However, the Index is still 7%below its average read in 2010 and is only 2.3%above the Nov 2011 level immediately followingthe rst rate cut in the current easing cycle.

The most key inuences on sentiment were:the RBAs 25bp rate cut; the announcementof a Sep 7 election date; the GovernmentsEconomic Statement which revealed a furtherdeterioration in the scal position; and the AUDsettling 15% below its Apr level.

Responses over the survey week suggestthe rate decision was particularly important.Responses received prior to the cut showedan index reading of 102.4 (+0.3% on Jul). Thosereceived post-cut showed a reading of 107.4(+5.2% on Jul).

That boost appears to have outweighed othernegatives, particularly from the GovernmentsEconomic Statement released the week priorto the survey which showed a further $33bndeterioration in the scal position. That is incontrast to May when a similar mix of a rate cutand a sharp deterioration in the scal positionrevealed in the Budget saw sentiment drop 7%.

60

70

80

90

100

110120

130

60

70

80

90

100

110120

130

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

indexindexSources: Melbourne Institute, Westpac Economics

long runaverage

postRBA

60

80

100

120

140

60

80

100

120

140

consumersentiment

finances,last 12mths

finances,next 12mths

economy,next 12mths

economy,next 5yrs

time to buymajor item

indexindex J ul Aug pre-RBA Aug post-RBA

Sources: Westpac, Melbourne Institute

+15.8

+11.6

2. Consumer sentiment before and after RBA rate cut

1. Consumer sentiment lifts


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By component, the biggest gains were in viewson family nances vs a year ago (+13%) andfamily nances, next 12mths (+9.7%) with amore muted gain in the sub-index tracking viewson economic conditions, next 12mths (+5.5%),a 0.4% dip in the sub-index on economicconditions, next 5yrs and a 5.5% fall in the timeto buy a major item sub-index. The latter mayreect the lower AUD and expectations that this

may push up the cost of imported goods. Note that the stronger bounce in views on

family nances is typical of rate cut reactions.On average these sub-indexes have risen 2.5%combined vs 1.5% for headline sentiment.

The demographic breakdown suggests otherfactors may also have been at play in Aug.Predictably, the rate cut drew a more positiveresponse from consumers with a mortgage(+7.4%). More surprising was the wedge insentiment between those in metro areas (+1%)and non-metro areas (+11%). That may partlyreect the sustained decline in the AUD awelcome relief for the rural and tourism sectors

that tend to dominate non-metro areas. While the monthly gain was more muted for

those in metro areas, sentiment in this segmentdid show a more marked increase after the RBArate cut.

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-5

5

15

25

35

45

20

40

60

80

100

120

140

Aug-73Aug-77Aug-81Aug-85Aug-89Aug-93Aug-97Aug-01Aug-05Aug-09Aug-13

indexindexrate cut rate cut +'major event'

Source: RBA, Westpac Melbourne Institute

monthly %change following cut

140

120

100

80

5

-5

-15

avg excl. months with amajor event : +2.3%

708090

100110120130140150

708090

100110120130140150

Aug-99 Aug-04 Aug-09 Aug-99 Aug-04 Aug-09 Aug-99 Aug-04 Aug-09

indexindexyes no metro non-metro ALP Coal. other

Source: Melbourne Institute,WestpacE conomics

*smoothed

mortgage voting intentionregion

4. Consumer sentiment: selected groups

3. Consumer views on family nances: rate cut reactions


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August 2013

Sentiment indicators: spending CSI is a composite index that combines thesub-indexes on family nances and timeto buy a major item with the Westpac RiskAversion Index which we nd provides a goodguide to actual spending. In Aug, CSI rose 3.4%in line with the move in headline sentiment. Itremains at a fairly weak level though consistentwith growth in per capita spending of 0-0.5%yr

Component-wise, strong gains in the sub-indexes on family nances (+11% on acombined basis) were partially offset by a5.5% fall in the time to buy a major item sub-index. Note that the risk aversion component isquarterly with the next update due in Sep.

Offi cial gures show real retail sales were at inQ2 with nominal sales also at in the Jun month.The May rate cut looks to have done little tospur demand, although it may have preventeda weaker outcome. The detail shows diffi cultconditions across most store categories andstates, with a clear slowing in the mining states.

Other spending indicators have been better.Vehicle sales rebounded in Q2: consumer sales+5.8% vs 3.6% in Q1, albeit with a 4% decline in

Jul. Fuel sales also improved: +0.7% vs 0.9% inQ1. Domestic air traffi c also looks to be up 2% vs1.7% in Q1. All gures are Westpac estimates ofseasonally adjusted quarterly changes.

-4-3-2-10123456

7

-30

-20

-10

0

10

20

30

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

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

Source: Melbourne Institute, ABS , Westpac Economics

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

Westpacforecast

-4

-20

2

4

6

8

10

-30

-20

-10

0

10

20

30

J un-93 J un-98 J un-03 J un-08 J un-13

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

Source: Melbourne Institute, ABS , Westpac Economics

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

Westpacforecast

6. CSI vs retail sales

5. CSI vs total consumer spending


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Both the NAB and AiG surveys reported afurther deterioration in consumer-relatedsectors in Q2. Reported trading conditions wereparticularly weak in the NAB survey (retail: 28vs 18 in Q1; consumer services: 1.3 vs 7.5). TheAiG PSI reading for retailers fell from 46.6 in Q1to 43.6 in Q2 but improved from 50.8 to 54.2 forconsumer services. The measure is a broaderassessment of conditions than simply sales.

One driver of demand often overlooked in thesales analysis are shifts in overseas populationows. Both short-term movements (i.e. tourism)and long-term movements (i.e. migration) canhave a major bearing on demand.

The Jun month for example likely saw a boostfrom a 40k surge in tourist arrivals associatedwith the British & Irish Lions tour. The broadertrends continue to be negative though, with asolid up-trend in outows and lacklustre inows.That may change with a lower AUD but this willtake time to impact. Long-term movementssuggest the pick-up in migrant inows may belevelling out, albeit consistent with still solid

population growth of 1.8%yr. Overall, we expect the Q2 national accounts

(due Sep 4) to show total consumer spending up0.4%qtr, taking annual growth to just 1.7%, i.e.stalled in per capita terms.

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-2

-1

0

1

2

3

4

-3

-2

-1

0

1

2

3

4

Total food deptstores

clothing h/hldgoods

otherretail

cafes &rest's

NSW Vic Qld SA WA

%qtr%qtrQ4 Q1 Q2

Sources: ABS; Westpac Economics

*real

by store category by state

0

1020

30

40

50

60

70

-250

-50

150

350

550

750

J un-97 J un-01 J un-05 J un-09 J un-13 J un-97 J un-01 J un-05 J un-09 J un-13

thousandsthousands

arrivalsdeparturesnet arrivals


short term (lhs) long term (rhs)*

*seasonally adjusted by Westpac

8. Overseas arrivals and departures

7. Retail sales by store category and state


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August 2013

Special topic: interest rate expectations The Aug survey included an extra question onexpectations for mortgage rates over the next12mths. The results show more consumersexpect rates to rise or be unchanged than to fall.

The results show 41% of consumers expect ratesto be higher by Aug 2014. Although that is thesame as in Feb, the Aug survey found a higherproportion expecting rates to stay on hold (36%vs 30% in Feb). There was also a signicant shiftin responses following the RBAs 25bp rate cut:44% of those surveyed after the move expectedrates to be higher, 38% expected no change, andonly 19% expected a further decline (vs 33% ofthose surveyed prior to the move).

The clear message is that most consumers donot expect mortgage rates to come down anyfurther over the next 12mths.

We now have 4yrs of surveyed mortgage rateexpectations spanning a cycle in which theaverage standard variable rate has risen from6.65% to 7.8%, and back down to 5.95%. Whileits debatable as to how typical that cycle mayhave been, a few tentative observations canbe drawn: 1) consumers seem more inclinedto expect rate rises than falls; 2) expectationscan be slow to react to cyclical changes; and3) there is rarely a strong consensus on thedirection of rates.

-500-400-300-200-1000100200300400

500

-100-80-60-40-20

020406080

100

Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13

bpsnet%

consumer mortgage rate expectations (lhs)actual change, previous 12mths (rhs)*actual change, following 12mths (rhs)*

Source: RBA, Westpac-Melbourne Institute

post RBAdecision

rates falling/expected to fall

rates rising/expected to rise

*standard variablemortgage rate

05101520253035404550

05

101520253035404550

Aug-11 Feb-12 J un-12 Aug-12 Feb-13 J un-13 Aug-13 pre-RBA

post-RBA

%responses%responsesfall >1% fall 0-1% no change rise 0-1% rise >1%

Source: Westpac-Melbourne Institute

Aug-13

10. Consumers expectations for mortgage rates next 12mths

9. Mortgage rate changes: consumer expectations vs actual


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That lack of consensus has a different meaningright now given the current low level ofmortgage rates. At 5.95%, rates are around150bps below their long-run average. Whileconsumers as a whole may not expect furtherrate cuts, they clearly expect a continuation ofthe low interest rate environment.

Consumers in NSW are more convinced rateswill rise with an outright majority, albeit a slightone (51%), expecting higher rates in a year.Renters are also more hawkish while homeowners tend to favour no change over rises,especially those with the most on the line,consumers with a mortgage.

The age-group breakdown shows a slightly morehawkish rate view amongst those in key rsthome buyer age groups. Those in age groupsthat drive upgrader and investor activity weremore evenly split between rates higher and nochange. There was no outright consensus onthe direction of rates across any group though.

Consumers at outlook on interest ratescompares with market pricing in the surveyweek which had a 25bp rate cut fully priced inby Apr 2014 (though just 17bps by Aug 2014).Westpacs long-held forecast of two more 25bprate cuts in Nov and Feb taking the cash rate toa low of 2% remains a more dovish view.

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140

-60-40-20

020406080

100120

140

Feb-10 Feb-12 Feb-11 Feb-13 Feb-10 Feb-12

net%net %NSW Vic mortgage rent FHB upgraderQld WA freehold investor

Source: Westpac-Melbourne Institute

state housing tenure

*survey monthsare Feb, J un, Aug

homebuyer group

compositesbased on age-group results

0

24

6

8

10

12

14

0

24

6

8

10

12

14

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

%%cash rate standard variable mortgage rateimplied by market pricing (13-J un) WBC forecastconsumer expectations

Sources: RBA, Bloomberg, Westpac-Melbourne Institute

f'casts*

Expected change next 12mths:Consumers*: no change (mortgage rate)Westpac: 50bps (cash rate)Market (13-Jun): 17bps (cash rate)

*projected mortgage rates assume nofurther change in spread to cash rate

12. Interest rate expectations

11. Interest rate expectations: selected groups


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August 2013

Sentiment indicators: durables, cars The sub-index tracking views on time to buy amajor household item fell 5.5% in Aug followinga milder 1.7% decline in Jul. The sub-index isdown 13.4% from its Mar high.

The fall coincides with a sustained decline inthe AUD from 104 US during the Apr surveyto 89 in Aug. The strength in the sub-index inrecent years and the wide disconnect from atactual spending appeared to be a by-productof the high currency, i.e. a boost to perceivedaffordability from the reduced cost of importedgoods rather than an intent to buy. This paritypremium may now be coming out of the time tobuy a major item assessment.

The sub-index tracking views on time to buya vehicle recovered half of its heavy Jul fall inAug, rising 5.4%. The index is back above itslong run average but well off its early year highs.

The AUD decline may be playing a part heretoo. Notably though, the Aug rise came despitethe Governments announced changes to fringebenet tax concessions for vehicles announcedin mid-Jul. Actual car sales were down a touchin the month (we estimate consumer sales weredown 4.4%). That may be partly due to the taxchanges although the main impact is expectedto come later on and mainly via eet sales(some expect a 5-10% fall in total annual sales).

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0

5

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-10

10

30


%ann avgindex*

time to buy a major item (adv 3qtrs, lhs)*

real per capita household goods retail sales (rhs)Sources: Melbourne Institute,ABS, Westpac Economics

*deviation from long run average, smoothed

last6mths

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-20

-10

0

10

20

30

-40-30-20

-100

10203040

J ul-05 J ul-06 J ul-07 J ul-08 J ul-09 J ul-10 J ul-11 J ul-12 J ul-13 J ul-14

ann%index'time to buy a car' (lhs)*new vehicle sales (rhs)

Sources: ABS, Melbourne Institute, WestpacEconomics

*advanced 6mthsper capita, consumer sales only

J apaneseearthquakehits supply

14. Time to buy a car vs consumer car sales

13. Time to buy a major item vs household goods retail


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The sub-index tracking views on time to buy adwelling rose 3.7% in Aug, reversing much ofthe 8.4% drop in Jul to be 13pts above its longrun average.

While positive, the bounce is disappointinggiven the Aug rate cut. A similar situation sawa much bigger rebound in May the sub-indexhad fallen 11% in Apr but regained all of thatlost ground following the RBAs May rate cut(note the charts below show smoothed seriesthat conceal much of this monthly volatility).Whereas interest rate expectations seemedto be at the heart of that earlier wobble, otherfactors look to be behind the Jul-Aug slip.

One of these factors looks to be a notable shiftin WA where the mining downturn may nowbe starting to play through to the previouslybuoyant Perth housing market. Instead ofbouncing in Aug, the WA time to buy a dwellingindex dropped a further 13.4% to be down 18.5%since May. While we have seen similar fallsin recent years reverse, the context this timeof a rapidly turning mining investment cycle

suggests this may be a more signicant shift. The situation looks more resilient across the

other state indexes, although again nonerecovered all of the Jul decline. Auction activityremains strong in Aug, particularly in Sydney.

020406080100120140160

180

020406080

100120140160

180

Aug-74 Aug-79 Aug-84 Aug-89 Aug-94 Aug-99 Aug-04 Aug-09 Aug-14

indexindex

Source: ABS, RP Data-Rismark, REIA, Westpac Melbourne Institute

early 80s recessionreal house pr ices 12.6%

early 90s recessionreal house pri ces 7.4%

2004 corr ectionreal house

pri ces 2.1% GFCreal house

pric es 8.7%

2010-12real house

prices 10.8%

latest: real house

pric es +3.6%

mid 70s recessionreal house

pric es 15.3%(Melb & Syd)

long run

average

50

70

90

110

130

150

170

50

70

90

110

130

150

170

Aug-07 Aug-09 Aug-11 Aug-13 Aug-08 Aug-10 Aug-12

indexindexNSW Vic Qld WA

Source: Melbourne Institute, WestpacEconomics *smoothed

16. Time to buy a dwelling: by state

15. Time to buy a dwelling

Sentiment indicators: housing


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August 2013

Sentiment indicators: risk aversion The wisest place for savings questions usedto construct the Westpac Consumer RiskAversion Index were not included in the Augsurvey but will be in Sep.

Recent readings have shown a gradual easingin risk aversion over the last 2yrs. The indexaveraged 43.4 in 2011H2, easing to 39.0 in2012H1, 35.6 in 2012H2 and 31.7 in 2013H1.The decline points to a moderation in thehousehold savings ratio from 10.6% currentlyto something closer to 8%. We suspect theimprovement will be more modest (to around9%) and slower to come through. The Sepupdate will give a critical guide to this view.

It should be noted that for the most part, thisexpected moderation in savings will act tocushion the effect of a slowdown in incomegrowth on spending rather than drive anacceleration in total spending.

The main driver of the decline in the RiskAversion Index has been a rise in theproportion nominating real estate as the wisestplace for savings. While that shift is conrmedby a strong 18% rise in the value of investorhome loans it is notable that the increase intotal investor credit outstanding has been muchmore muted, the implication being that existinginvestors are still reducing debt aggressively.

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19

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30

5070

Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13

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

Sources: ABS , Westpac, Melbourne Institute

*% nominating 'pay down debt' or interestbearing assets as wisest place for savingsminus % nominating real estate or shares;advanced 2qtrs

Westpacforecast

-10

0

10

20

30

40

50

10

1520

25

30

35

40

45


%ann%wisest place for savings: realestate (advanced 6mths, lhs)investor housing credit (rhs)*

Sources: RBA, ABS , Westpac, Melbourne Institute

*inflation-adjusted, per capita

improved accessto finance andCGT changes

investor boom

18. Wisest place for savings: % nominating real estate

17. Consumer risk aversion vs household savings


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The Westpac-Melbourne InstituteUnemployment Expectations Index was atin Aug, following a 3.6% fall in Jul. At 152.7the Index remains at a very high level byhistorical standards and indicates widespreadexpectations that unemployment will rise.

Interest rate cuts do not tend to generate thesame immediate improvement in unemploymentexpectations as they do with headline consumersentiment. Nonetheless, the lack of a positiveinterest rate response does tend to underminethe gain in sentiment particularly given thevery weak starting point for this proxy forconsumers sense of job insecurity.

The contrast between sentiment andunemployment expectations has been stark inrecent years. Chart 19 shows the two seriesscaled to a consistent basis (the unemploymentexpectations index inverted and adjusted for itsgreater volatility) with both benchmarked to 100in Jan 2007. Whereas sentiment is down 4% overthis period, unemployment expectations are26% worse on this basis. Moreover, in the time

the RBA has been cutting rates, unemploymentexpectations have deteriorated by about asmuch as sentiment has improved.

The Aug detail continues to show sharp rises inQld and WA, clearly due to the mining downturn.

5060708090100110120

130

5060708090

100110120

130

J an-07 J an-08 J an-09 J an-10 J an-11 J an-12 J an-13 J an-14

indexindexWestpac-MI Consumer Sentiment IndexWestpac-MI Consumer Unemployment Expectations Index*

Source: Melbourne Institute, Westpac Economics

both indexes re-based to J an-07*index inverted and scaled to be on thesame basis as consumer sentiment

since RBAeasing cyclebegan:

9.3%

+8.7%

-3-2-1

012345

-3-2-1

012345

J ul-97 J ul-01 J ul-05 J ul-09 J ul-13 J ul-97 J ul-01 J ul-05 J ul-09 J ul-13

pptspptsunemployment expectations(st devns from long run avg)ann ch unemp (ppts)

Source: Melbourne Institute, WestpacEconomics

*smoothed

south-east resource states

20. Unemployment actual and expected: by state

19. Unemployment expectations vs consumer sentiment

Sentiment indicators: job security


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August 2013

State snapshot: Victoria The Vic state economy remains the weakest ofthe major states with state demand down 0.6%in the year to Q1. Notably, a sharp decline inpublic investment (38% in 2012) has been akey driver in the weakening. Consumer demandhas also slowed though as labour incomes havecome under pressure.

The consumer survey shows some intriguingdivergences between Vic and the rest of thenation in Aug. Sentiment showed a much moremuted rise in Vic (+0.6%) with a more mutedresponse from view on family nances andexpectations for the economy marked sharplylower.

Responses on time to buy a major item andunemployment expectations were a little betterthough. The AUD decline may be seen as moreof a positive for the state which has a lowerdirect exposure to the mining sector and ahigher concentration of manufacturing, healthand education sectors that may view the lowercurrency with relief.

Vic consumers have been consistently lessupbeat on time to buy a dwelling with aconsistent 8pt wedge vs the rest of Aus over thelast year. A Vic housing recovery does appearto be underway nonetheless although auctionactivity has been less buoyant than in Sydney.

60708090100110120130

140

60708090

100110120130

140


indexindexVic rest of Aus


*smoothed

sentiment finances^avg of family finances vs

a year ago and familyfinances next 12mths

economyavg economic outlook

next 12mths and next 5yrs

50

7090

110

130

150

170

190

50

7090

110

130

150

170

190


indexindex

Vic rest of Aus

Source: Melbourne Institute,WestpacEconomics

*smoothed

major item unemp expnsdwelling

22. Consumer views on time to buy & jobs: Vic vs Aus

21. Consumer sentiment, nances & economy: Vic vs Aus


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Westpac household barometer The Westpac Household Barometer combinessystem-wide data on credit and debit cardtransactions from the RBA with data onmortgage and credit card payments by Westpaccustomers to generate a broad gauge ofconsumer nancial behaviour. Higher readingscorrespond to more defensive/conservativebehaviour and vice versa.

The latest readings based on system transactiondata to Jun and Westpac customer data to

Jul, shows a continued modest relaxation inbehaviour after a sharp conservative shift in Q1.The Barometer is 0.5% below its Mar peak, butis still up 0.4%yr (all data is seasonally adjusted).

Card usage has improved notably. Q1 saw anabrupt slowdown with annual growth in thereal value of credit and debt card transactionsdropping to 1.8%yr, the slowest pace on recordsback to 1994 and well below the 6% averageover the last decade and the 4.5% average overthe last 5yrs. Activity bounced impressively inQ2 with annual growth lif ting back to 5.7%yralbeit with a softening in the Jun month.

The mix of card use also shift back in favour ofcredit over debit cards, a further indication ofmore relaxed nancial behaviour. That said, theoverall level of the Barometer still points torelatively high savings rates maintained in Q2.

-2024681012

14

97.5

99.0

00.5

02.0

03.5

Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13

%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

-2

0

2

4

6

8

123456789

101112

Mar-05 Mar-07 Mar-09 Mar-11 Mar-13

ann%ann%

card transactions (lhs)* consumer spending (rhs)

Source: RBA, ABS, Westpac*real value of all credit and debit card transactions,rolling 3mth total, seasonally adjusted by Westpac

24. Card transactions vs real spending growth

23. Westpac household barometer


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18

August 2013

Economic and nancial forecasts

Interest rate forecastsLatest (16 Aug) Sep 13 Dec 13 Mar 14 Jun 14 Sep 14

Cash 2.50 2.50 2.25 2.00 2.00 2.00

90 Day Bill 2.58 2.55 2.30 2.10 2.10 2.10

3 Year Swap 3.09 2.90 2.80 2.70 2.70 2.90

10 Year Bond 3.97 3.60 3.40 3.30 3.20 3.10

10 Year Spread to US (bps) 119 120 120 120 120 110

International

Fed Funds 0.25 0.125 0.125 0.125 0.125 0.125

US 10 Year Bond 2.78 2.40 2.20 2.10 2.00 2.00

US Fed balance sheet USDtrn 3.69 3.78 4.03 4.29 4.54 4.80

ECB Repo Rate 0.50 0.50 0.50 0.50 0.50 0.50

Exchange rate forecastsLatest (16 Aug) Sep 13 Dec 13 Mar 14 Jun 14 Sep 14

AUD/USD 0.9147 0.92 0.92 0.92 0.90 0.87

NZD/USD 0.8067 0.80 0.82 0.83 0.81 0.78

USD/JPY 97.58 99 98 97 96 96

EUR/USD 1.3342 1.33 1.33 1.33 1.30 1.25

AUD/NZD 1.1339 1.15 1.12 1.11 1.11 1.12

Sources: Bloomberg, Westpac Economics.


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19

Economic and nancial forecasts


Australian economic growth forecasts2013 2014

Q4 Q1 Q2f Q3f Q4f Q1f Q2f

GDP % qtr 0.6 0.6 0.6 0.7 0.6 0.6 0.6

Annual change 3.2 2.5 2.6 2.5 2.5 2.5 2.4

Unemployment rate % 5.4 5.5 5.6 5.8 6.2 6.4 6.4

CPI % qtr 0.2 0.4 0.4 1.0 0.4 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 0.5 0.7 0.6 0.6

ann change 2.4 2.4 2.4 2.1 2.2 2.4 2.4

Calendar years

2011 2012 2013f 2014f

GDP % ann change 2.4 3.6 2.5 2.3

Unemployment rate % 5.2 5.4 6.2 6.4

CPI % ann change 3.0 2.2 2.2 2.5

CPI underlying % ann change 2.8 2.4 2.2 2.3

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.


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20

August 2013

Consumer demand2013 2014

% change Q1 Q2e Q3f Q4f Q1f Q2f Q3f Q4f

Total private consumption* 0.6 0.4 0.7 0.8 0.7 0.8 0.8 0.9

annual chg 2.0 1.7 2.1 2.5 2.6 3.0 3.1 3.2

Real labour income, ann chg -0.1 0.0 0.7 -0.2 0.2 0.3 0.9 1.6

Real disposable income, ann chg** 2.7 1.8 2.3 2.1 1.8 1.8 2.0 2.2Household savings ratio 10.6 10.8 10.6 10.1 10.1 9.9 9.7 9.3

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)*** 894.7 904.6 805.7 835.0 839.2 847.6 864.5 881.8

annual chg 4.3 3.4 -8.6 -8.4 -6.2 -6.3 7.3 5.6

Calendar years

2011 2012 2013f 2014f

Total private consumption, ann chg* 3.4 3.3 2.1 3.0

Real labour income, ann chg 4.5 3.6 0.1 0.8

Real disposable income, ann chg** 4.5 2.3 2.2 1.9

Household savings ratio, % 11.0 10.3 10.5 9.7

Real retail sales, ann chg 0.5 3.2 2.7 2.7

Motor vehicle sales (000s) 806.0 881.5 860.0 895.0

annual chg -2.7 9.4 -2.4 4.1

Notes to pages 20 and 21:* National accounts definition.** Labour and nonlabour 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


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21

Consumer data and forecasts


Consumer sentiment2012 2013

% change avg^ Nov Dec Jan Feb Mar

WestpacMI Consumer Sentiment Index 101.7 104.3 100.0 100.6 108.3 110.5

family finances vs a year ago 89.8 91.8 85.2 77.8 83.5 86.8

family finances next 12 months 108.5 100.2 104.8 103.5 105.0 108.2

economic conditions next 12 months 90.4 96.6 92.4 95.0 108.9 109.8

economic conditions next 5 years 90.9 96.8 88.2 91.1 101.0 107.1

time to buy major household item 128.0 136.1 129.6 135.7 143.1 140.8

time to buy a motor vehicle 122.5 137.5 138.4 146.8 140.7 142.5

time to buy a dwelling 123.2 139.8 142.2 140.0 135.4 144.5

WestpacMI Consumer Risk Aversion Index^^ 11.6 31.3 32.8

CSI 103.4 98.5 97.1 96.3 99.9 100.8

consumer mortgage rate expectations# 42.5 11.2

consumer house price expectations# 26.7 consumer wage expectations# -25.9 -27.3

WestpacMI Unemployment Expectations 128.3 142.2 154.5 144.9 145.1 139.7

128.1 2013

continued Apr May Jun Jul Aug

WestpacMI Consumer Sentiment Index 104.9 97.6 102.2 102.1 105.7

family finances vs a year ago 83.4 76.7 83.2 78.6 88.8

family finances next 12 months 108.0 100.5 105.9 103.0 113.0

economic conditions next 12 months 104.9 90.8 94.3 95.1 100.3

economic conditions next 5 years 98.2 91.4 94.3 103.0 102.5

time to buy major household item 130.2 128.5 133.3 131.1 123.9

time to buy a motor vehicle 138.0 139.7 138.4 124.2 130.9

time to buy a dwelling 128.4 142.7 143.3 131.3 136.2

WestpacMI Consumer Risk Aversion Index^^ 30.7

CSI 97.4 93.6 97.9 95.5 98.7

consumer mortgage rate expectations# 8.7 17.4

consumer house price expectations# 53.9 46.9

consumer wage expectations#

WestpacMI Unemployment Expectations 141.5 149.1 158.5 152.8 152.7


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22

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Disclaimer


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Disclaimer

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24


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Notes


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Notes

26


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27

Westpac EconomicsSydneyLevel 2, 275 Kent StreetSydney NSW 2000Telephone (612) 8254 8372Facsimile (612) 8254 6907

Bill EvansChief EconomistGlobal Head of Economics & Research

Andrew HanlanSenior Economist

Matthew HassanSenior Economist

Huw McKaySenior International Economist

Justin SmirkSenior Economist

Elliot ClarkeEconomist

LondonCamomile Court,23, Camomile St,London EC3A 7LLUnited KingdomTelephone (4420) 7621 7061Facsimile (4420) 7621 7527

James ShuggSenior Economist

AucklandTakutai on the SquareLevel 8, 16 Takutai SquareAuckland, New ZealandTelephone (649) 336 5671Facsimile (649) 336 5672

Dominick StephensChief Economist, New Zealand

Michael GordonMarkets Economist

Felix DelbrckSenior Economist

Nathan PennyEconomist

Westpac Economics directory

Publication enquiries, Westpac Economics, Telephone (612) 8254 8720, [email protected]


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www.westpac.com.au

Documents

WestpacRedBookAugust2013.pdf