The Red Book

September 2013

Westpac Economics with the Institutional Bank.

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

August 2013

Contents

Executive summary The consumer mood: election hope Sentiment indicators: spending Special topic Australian dollar Sentiment indicators Durables, cars Housing Risk aversion Job security State snapshot: Queensland Westpac household barometer Summary forecast tables Economic & nancial forecasts Consumer data and forecasts

4 6 8

10

12 13 14 15 16 18

19 21

The Westpac Red Book is produced by Westpac Economics Editor: Matthew Hassan Internet: www.westpac.com.au Email: economics@westpac.com.au This issue was nalised on 13 September 2013 The next issue will be published on 11 October 2013

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September 2013

Executive summary
The WestpacMelbourne 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 Coalitions 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 signicant election eect. 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 at currently to around 3-3%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%) conrming 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 rst started cutting rates in Nov 2011.

Westpac Institutional Bank

Consumer spending: weak

ann% 8 real consumer spending real consumer spending per capita 7 6 long run 5 average 4 3 2 1 0 -1 qtly%ch -2 -3 Sources: ABS, Westpac Economics -4 Jun-88 Jun-93 Jun-98 Jun-03 Jun-08 ann%
Westpac forecasts

8 7 6 5 4 3 2 1 0 -1 -2 -3 -4

Jun-13

The September WestpacMelbourne Institute Consumer Sentiment survey was conducted in the week leading into the Federal election and the results have been heavily inuenced by expectations around a change of Government. In moves reminiscent of those seen when the Howard government was rst elected in 1996, the headline WestpacMelbourne Institute Consumer Sentiment Index surged into solidly optimistic territory, led by rising expectations for the economy with the eects 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 eects, 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. Its 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 WestpacMelbourne 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.
5

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 dicult 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. Seps 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.

1. Consumer sentiment: strong rally

130 120 110 100 90 80 70 60 Sep-83 Sep-88 Sep-93 Sep-98 Sep-03 Sep-08 Sep-13
long run average

index
Sources: Melbourne Institute, Westpac Economics

index
7-8 Sep

130 120 110 100 90 80 70 60

2. Consumer sentiment: elections

140 120
+5.1%

index 1mth before

index election month* 3mths after

+6.5% +5.2%
Sources: Westpac, Melbourne Institute

140 120 100 80 60

*red bars indicate change of Government +1.8% +4.7%

100 80 60
74 75 77 80

83

84

87

90

93

96

98

01

04

07

10

13

Westpac Institutional Bank

The Sep survey detail also carries echoes of 1996. Condence 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 oer 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 electionrelated it follows incremental improvements in Q1 and Q2 and likely reects 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 rst started cutting rates in Nov 2011.

3. Consumer sentiment, job security & risk aversion

index index 140 since RBA Westpac-MI Consumer Sentiment Index 130 cycle Westpac-MI Consumer Unemployment Expectations Index* easing began: 120 Westpac Risk Aversion Index* 110 +13.8% 100 +17.6% 90 2.3% 80 70 all indexes re-based to Jan-07 *scaled to be on the same basis as consumer sentiment 60 Source: Melbourne Institute, Westpac Economics 50 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 140 130 120 110 100 90 80 70 60 50

4. Consumer recall: selected news items

80 60 40 20 0 0 50 100 150 200 %recall*
*bubble size also shows level of recall

unfavourable

favourable

high

recall interest rates Budget & tax low economy recall unemployment overseas Observations:
1: Jun-13 2: Sep-13
Sources: Westpac Economics, Melbourne Institute

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 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 1%yr a 3-3%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 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.

5. CSI vs total consumer spending

30 20 10 0 -10 -20
*consumer sentiment plus risk aversion minus economic questions, devn from long run avg, smoothed, adv. 6mths; ^real, per capita
Source: Melbourne Institute, ABS, Westpac Economics

index
CSI (lhs)* consumer spend (rhs)^

ann%
Westpac forecast

-30 Jun-93 Jun-95 Jun-97 Jun-99 Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13

7 6 5 4 3 2 1 0 -1 -2 -3 -4

6. CSI vs retail sales

30 20 10 0 -10 -20
*consumer sentiment plus risk aversion minus economic questions, deviation from long run avg, smoothed
Source: Melbourne Institute, ABS, Westpac Economics

index
CSI (lhs)* real retail sales per capita (rhs)

ann%
Westpac forecast

10 8 6 4 2 0 -2 -4

-30 Jun-93

Jun-98

Jun-03

Jun-08

Jun-13

Westpac Institutional Bank

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 at sales for cafes & restaurants (small ticket discretionary).

Business surveys are showing little improvement. The NAB business condence 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.

7. Household disposable income changes decomposed

$bn 12 10 8 6 4 2 0 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 2012Q3 2012Q4
1. labour income 2. other income 3. interest payments 4. tax & other payments 5. savings 6. spending

2013Q1
*grey indicates net boost to incomes & spending, red indicates a net drag

2013Q2

$bn 12 10

Source: ABS, WestpacMelbourne Institute labour income stalled (avg +$1.2bn/qtr vs $3bn/qtr prev 4qtrs) rate cuts adding $0.7bn/qtr ...

... but offset by higher saving (avg 0.4bn/qtr)

8 6 4 2 0

8. Job security and cyclical consumer spend

2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 Jun-78 Jun-83
major downturns

%ch
Sources: ABS, Melb. Institute, Westpac

index

80 100 120 140

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

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

160 180 200

Jun-88

Jun-93

Jun-98

Jun-03

Jun-08

Jun-13

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 inuences 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 currencys 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 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 oering 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.

9. Consumers assessment of AUD decline

60 50 40 30 20 10 0 Aus NSW Vic Qld SA WA net% favourable neutral unfavourable 50 40 30 20 10 0
Source: Westpac-Melbourne Institute

net%

60

10. Consumers assessment of AUD decline: selected groups

net% 60 50 40 30 20 10 0
Aus 18-24 25-34 35-44 45-49 50-54 55-64 65+ male female rent mort. own

age favourable neutral unfavourable

gender

housing net% 60 50 40 30 20 10 0

10

Westpac Institutional Bank

Looking at the detailed responses, there were net favourable reads across all sub-groups. Consumers in SA reported the highest net favourable reading, reecting the importance of the states trade-exposed non-mining sectors (agriculture, wine-making and manufacturing). Consumers in WA reported the lowest net favourable read, likely reecting 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 reected 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.

11. Consumer recall: AUD news

60 45 30 15 0 -15 150 -30 100 -45 50 -60 0 Jun-85
Source: Westpac Melbourne Institute

%
long postfloat slide, banana republic quote

proportion recalling news

early 90s recession Asian crisis 2000 slump to sub-50 GFC 2013 mini slide

%
AUD makes rise above USD parity

60 400 45 350 30 300 15 250 0 200 150 100 50 0

news favourable/unfavourable

Jun-89

Jun-93

Jun-97

Jun-01

Jun-05

Jun-09

Jun-13

12. Consumer sentiment and the AUD

160 120 80 40 0 15 -40 0
mth%ch following AUD event

index
markers show sharp AUD falls/new lows

index 160 75 120 60

periods of secular AUD decline

AUD news recall: net favourable (period avg) avg: -1.0%

80 45 40 30 15 0

-15 -80 Jun-85 Jun-88 Jun-91 Jun-94 Jun-97 Jun-00 Jun-03 Jun-06 Jun-09 Jun-12

Source: RBA, Westpac Melbourne Institute

-15

11

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 rmly positive territory, 4.5pts above its long run average though still 10pts o 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 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 benet tax (FBT) concessions. The AUD move may not be impacting sentiment yet as local car prices are yet to reect 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.

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

index* 40 Sources: Melbourne Institute, ABS, Westpac Economics 30 20 10 0 -10 -20 GST introduction -30 time to buy a major item (lhs)* -40 spending: 'major household items' (rhs)^ -50 *deviation from long run average, smoothed, adv 3qtrs -60 ^real per capita spend on furniture, appliances & renovations <$10k -70 Sep-89 Sep-94 Sep-99 Sep-04 Sep-09 %ann 18 15 12 9 6 3 0 -3 -6 -9 -12 -15 -18

last 6mths annd

Sep-14

14. Time to buy a car vs vehicle purchases

40 30 20 10 0 -10 -20 -30 -40 Jun-91
GST (lowered car prices)
Sources: ABS, Melbourne Institute, Westpac Economics

index
qtly

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

30 20 10 0 -10

*real per capita, national accounts measure

Japanese supply shock

-20 -30

Jun-94

Jun-97

Jun-00

Jun-03

Jun-06

Jun-09

Jun-12

12

Westpac Institutional Bank

Sentiment indicators: housing

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 eect 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 Australias 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 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 (rst home buyers very weak) and states (lagging in Vic in particular). The 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 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.

15. Time to buy a dwelling & job security

60 30 0 -30 -60 -90 Sep-75 time to buy dwelling unemployment expectations (inverted)
*deviation from long run average, smoothed

index
Source: Westpac Melbourne Institute

index

60 30 0 -30 -60 -90

Sep-80

Sep-85

Sep-90

Sep-95

Sep-00

Sep-05

Sep-10

16. Model of housing nance approvals

ann% ann% 60 simple regression on 'time to buy dwelling' and unemp expectations 50 housing finance approvals ex refi (number, trend) 40 30 20 10 0 -10 -20 -30 *9mth projection assumes no -40 Source: ABS, Westpac change in sentiment measures -50 Jul-83 Jul-88 Jul-93 Jul-98 Jul-03 Jul-08 Jul-13 60 50 40 30 20 10 0 -10 -20 -30 -40 -50

13

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 signcant 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 eect 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.

17. Consumers: wisest place for savings

60 50 40 30 20 10 0 Sep-98
Sources: Westpac, Melbourne Institute

%
shares real estate deposits/super repay debt*
seasonally adjusted by Westpac *repay debt and super options only included from 1997

60 50 40 30 20 10 0

Sep-01

Sep-04

Sep-07

Sep-10

Sep-13

18. Westpac Risk Aversion Index

% 70 50 30 10 -10 -30 Sep-95 Sep-97 Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13
Sources: ABS, Westpac, Melbourne Institute

%
Westpac consumer risk aversion index (lhs)* household savings rate (rhs)
*% nominating 'pay down debt' or interest bearing assets as wisest place for savings minus % nominating real estate or shares; advanced 2qtrs

19 14 9

Federal elections; qtr before and qrr after

4 -1 -6

14

Westpac Institutional Bank

Sentiment indicators: job security

The Westpac-Melbourne Institute Unemployment Expectations Index declined 6.6% in Sep marking a signicant 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 ocial data showing weak labour market conditions in Aug job loss fears will remain an issue near term. The Indexs 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 dicult to full. 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.

19. Unemployment: actual vs expected

std devns unemployment expectations (lhs)* 3 unemployment rate (ann ch, rhs) *shown as std devn from 2 4 1 0 -1 -2
Sources: ABS, Westpac-Melbourne Institute

ppts^ 2.5 1.5

Federal elections; qtr before and qrr after

long run avg, adv. 4 mths

0.5 -0.5 -1.5

-2.5 -3 Aug-93 Aug-95 Aug-97 Aug-99 Aug-01 Aug-03 Aug-05 Aug-07 Aug-09 Aug-11 Aug-13

20. Unemployment expectations, hours worked by state

4 3 2 1 0 -1 -2 -3
Source: Melbourne Institute, Westpac Economics

st devn

non-mining states

mining states

st devn

unemployment expectations* hours worked, ann change

4 3 2 1 0 -1 -2

-4 -4 Aug-97 Aug-01 Aug-05 Aug-09 Aug-13 Aug-97 Aug-01 Aug-05 Aug-09 Aug-13 Aug-17

std devns from long run avg *smoothed

-3

15

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 nances and time to buy a major item. Indeed, Qlders are more optimistic on the economic outlook than the rest of the nation for the 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. Qlders are more bullish on time to buy a dwelling than the rest of the nation, despite Qlds housing market struggling more than most in recent years. On the unemployment outlook though, Qlders are considerably more fearful with unemployment expectations at 150 vs 141 across the rest of Australia. The mix may explain the states more sluggish housing recovery a better aordability 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 Qlders are a touch more risk averse than the rest of the nation, showing a stronger inclination towards bank deposits.

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

140 130 120 110 100 90 80 70 60 Sep-04
Source: Melbourne Institute, Westpac Economics

sentiment index Qld rest of Aus

*smoothed

finances^
^avg of family finances vs a year ago and family finances next 12mths

economy^

index

^avg economic outlook next 12mths and next 5yrs

140 130 120 110 100 90 80 70 60

Sep-09

Sep-04

Sep-09

Sep-04

Sep-09

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

190 170 150 130 110 90 70
*smoothed
Source: Melbourne Institute, Westpac Economics

index major item Qld rest of Aus

dwelling

unemp expns index

190 170 150 130 110 90 70 50

50 Sep-04

Sep-09

Sep-04

Sep-09

Sep-04

Sep-09

16

Westpac Institutional Bank

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 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 gures on system-wide credit and debit card usage show a rebound from Q1s very weak reading. Annual growth in the real value of card transations dropped to just 1.5% in the 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.

23. Westpac household barometer

03.5 02.0 00.5 99.0 97.5 Jun-06
Source: RBA, Westpac Group

index
more conservative less conservative

14 12 10 8 6 4 2 0 -2

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

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

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

24. Card transactions: credit vs debit

46 44 42 40 38 36 34 32 30 Jul-03 Jul-05 Jul-07 Jul-09
decreased use of debit vs credit
initial onset of cautious consumer

%
increased use of debit vs credit

ann%

46 44 42 40 38 36 34 32 30

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

Source: RBA, ABS, Westpac

Jul-11

Jul-13

17

September 2013

Economic and nancial forecasts

Interest rate forecasts
Latest (13 Sep) Cash 90 Day Bill 3 Year Swap 10 Year Bond 10 Year Spread to US (bps) International Fed Funds US 10 Year Bond US Fed balance sheet USDtrn ECB Repo Rate 0.125 2.93 3.70 0.50 0.125 2.60 3.99 0.50 0.125 2.40 4.23 0.50 0.125 2.60 4.47 0.50 0.125 2.75 4.71 0.50 0.125 2.80 4.95 0.50 2.50 2.58 3.24 4.09 115 Dec 13 2.25 2.30 2.80 3.60 100 Mar 14 2.00 2.10 2.70 3.30 90 Jun 14 2.00 2.10 2.70 3.40 80 Sep 14 2.00 2.10 2.90 3.50 75 Dec 14 2.00 2.10 3.20 3.70 90

Exchange rate forecasts

Latest (13 Sep) AUD/USD NZD/USD USD/JPY EUR/USD AUD/NZD
Sources: Bloomberg, Westpac Economics.

Dec 13 0.92 0.82 98 1.31 1.12

Mar 14 0.92 0.83 97 1.31 1.11

Jun 14 0.90 0.81 96 1.28 1.11

Sep 14 0.87 0.78 95 1.23 1.12

Dec 14 0.85 0.76 94 1.20 1.12

0.9250 0.8120 99.80 1.3280 1.1390

18

Westpac Institutional Bank

Economic and nancial forecasts

Australian economic growth forecasts
2013 Q4 GDP % qtr Annual change Unemployment rate % CPI % qtr Annual change CPI underlying % qtr ann change 0.7 3.3 5.4 0.2 2.2 0.6 2.4 Q1 0.5 2.5 5.5 0.4 2.5 0.4 2.4 Q2f 0.6 2.6 5.6 0.4 2.4 0.5 2.4 Q3f 0.5 2.3 5.8 1.0 2.0 0.6 2.1 Q4f 0.6 2.2 6.0 0.3 2.2 0.6 2.2 2014 Q1f 0.5 2.2 6.4 0.6 2.4 0.6 2.3 Q2f 0.6 2.2 6.4 0.6 2.6 0.7 2.5

Calendar years 2011 2.4 5.2 3.0 2.8 2012 3.7 5.4 2.2 2.4 2013f 2.5 6.0 2.2 2.2 2014f 2.3 6.5 2.7 2.6

GDP % ann change Unemployment rate % CPI % ann change CPI underlying % ann change

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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September 2013

Consumer data and forecasts

Consumer demand
2013 % change Total private consumption* annual chg Real labour income, ann chg Real disposable income, ann chg** Household savings ratio Real retail sales, ann chg Motor vehicle sales (000s)*** annual chg Q1 0.7 2.1 -0.3 2.9 10.5 3.5 893.8 4.2 Q2 0.4 1.8 0.7 2.2 10.8 2.0 902.0 3.3 Q3f 0.7 2.3 1.2 2.3 10.6 2.5 808.2 -8.6 Q4f 0.7 2.5 0.4 2.0 10.3 2.8 836.0 -8.3 2014 Q1f 0.7 2.5 0.8 2.1 10.3 1.6 840.2 -6.0 Q2f 0.7 2.8 0.2 2.0 10.2 2.4 848.6 -5.9 Q3f 0.8 2.9 0.8 2.2 10.0 3.0 865.6 7.1 Q4f 0.8 3.0 1.3 2.4 9.8 3.6 882.9 5.6

Calendar years 2011 Total private consumption, ann chg* Real labour income, ann chg Real disposable income, ann chg** Household savings ratio, % Real retail sales, ann chg Motor vehicle sales (000s) annual chg 3.3 4.5 4.3 10.8 0.5 806.1 -2.7 2012 3.2 3.7 2.4 10.3 3.2 881.6 9.4 2013f 2.2 0.6 2.4 10.6 2.7 860.0 -2.4 2014f 2.8 0.9 2.2 10.2 2.7 895.0 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.

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Westpac Institutional Bank

Consumer data and forecasts

Consumer sentiment
2012 % change WestpacMI Consumer Sentiment Index family finances vs a year ago family finances next 12 months economic conditions next 12 months economic conditions next 5 years time to buy major household item time to buy a motor vehicle time to buy a dwelling WestpacMI Consumer Risk Aversion Index^^ CSI consumer mortgage rate expectations# consumer house price expectations# consumer wage expectations# WestpacMI Unemployment Expectations avg^ 101.8 89.8 108.5 90.5 91.0 128.0 122.5 123.3 11.6 103.5 42.5 -25.9 128.3 128.1 continued WestpacMI Consumer Sentiment Index family finances vs a year ago family finances next 12 months economic conditions next 12 months economic conditions next 5 years time to buy major household item time to buy a motor vehicle time to buy a dwelling WestpacMI Consumer Risk Aversion Index^^ CSI

2013 Jan 100.6 77.8 103.5 95.0 91.1 135.7 146.8 140.0 96.4 26.7 144.9 Feb 108.3 83.5 105.0 108.9 101.0 143.1 140.7 135.4 99.9 11.2 145.1 Mar 110.5 86.8 108.2 109.8 107.1 140.8 142.5 144.5 32.5 100.8 -27.3 139.7 Apr 104.9 83.4 108.0 104.9 98.2 130.2 138.0 128.4 97.6 53.9 141.5

Dec 100.0 85.2 104.8 92.4 88.2 129.6 138.4 142.2 31.0 97.1 154.5 2013 May 97.6 76.7 100.5 90.8 91.4 128.5 139.7 142.7 93.9 149.1

Jun 102.2 83.2 105.9 94.3 94.3 133.3 138.4 143.3 29.0 98.3 8.7 158.5

Jul 102.1 78.6 103.0 95.1 103.0 131.1 124.2 131.3 97.0 46.9 152.8

Aug 105.7 88.8 113.0 100.3 102.5 123.9 130.9 136.2 101.3 17.4 152.7

Sep 110.6 87.1 114.8 109.0 109.8 132.5 133.4 145.0 16.1 104.6 142.6 21

consumer mortgage rate expectations# consumer house price expectations# consumer wage expectations# WestpacMI Unemployment Expectations

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Notes

Notes

26

Westpac Economics directory

Westpac Economics Sydney Level 2, 275 Kent Street Sydney NSW 2000 Telephone (612) 8254 8372 Facsimile (612) 8254 6907 Bill Evans Chief Economist Global Head of Economics & Research Andrew Hanlan Senior Economist Matthew Hassan Senior Economist Huw McKay Senior International Economist Justin Smirk Senior Economist Elliot Clarke Economist London Camomile Court, 23, Camomile St, London EC3A 7LL United Kingdom Telephone (4420) 7621 7061 Facsimile (4420) 7621 7527 James Shugg Senior Economist Auckland

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Dominick Stephens Chief Economist, New Zealand Michael Gordon Markets Economist

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Publication enquiries, Westpac Economics, Telephone (612) 8254 8720, economics@westpac.com.au

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