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Er 20120912 Bull Consumer Sentiment

Er 20120912 Bull Consumer Sentiment

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Published by Luke Campbell-Smith

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Published by: Luke Campbell-Smith on Sep 12, 2012
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Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based arereasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
Consumer Sentiment rises slightly but remains weak 
This is the seventh consecutive month that the Index has beenbelow 100. Apart from the 2008/09 period when the Indexheld below 100 for 16 consecutive months this represents thelongest run of consecutive ‘sub 100’ prints since the early 1990s.Furthermore, there have only been two months in the last 15when the Index has printed above 100.The consumer is clearly stuck in an extended ‘cautiouslypessimistic’ phase. In September last year the Index printed96.9 so it has only increased by 1.3% over the whole year. Thatis despite 125bps of rate cuts from the Reserve Bank; a more orless steady unemployment rate which is close to full employment;and some recent positive news around the threatening Europeansituation.This does not bode well for consumer spending and is consistentwith the slowdown in consumer spending indicated by the Junequarter national accounts. Although this followed a strong Marchquarter rise, the softening has come despite major policy booststo household incomes including $1.9bn in fiscal handouts. With asharp fall in July retail sales confirming this boost is now reversing,underlying momentum appears to be soft, in line with theconsistently downbeat signal from the Consumer Sentiment Index.Media coverage is often a major factor shaping respondents’confidence including how they assess their own financial positionand how they evaluate macro issues.In the September report we receive an update on the news itemswhich are capturing the attention of consumers and whetherthese were favourable or unfavourable. It shows the dominantnews in September was around ‘economic conditions’ with 47%recalling news on this issue. Next was ‘budget and taxation’(39.8% recall); international conditions (25.5% recall); andemployment/wages (20.6% recall). Other topics registering lowerrecall include covered interest rates; inflation; politics and theAustralian dollar.Since June, the overall sentiment Index has increased by amodest 2.7%. Respondents generally recalled slightly lessunfavourable news on international conditions although theseitems were still overwhelmingly negative. Other news was viewedas even more unfavourable than in June.Four of the five components of the Index increased with the sub-indexes tracking views on “family finances compared to a yearago” up 0.3%; “family finances over the next 12 months” up 4.8%;“economic conditions over the next 12 months” up 0.6% and“economic conditions over the next 5 years” up 3.4%. The sub-index tracking views on “whether it is a good time to buy a majorhousehold item” fell by 0.4%.By June this year we were particularly concerned by readings on“family finances over the next 12 months” which was printing ata level around the low-point of the 2008-09 period. Since then
12 September 2012
The Westpac Melbourne Institute Index of ConsumerSentiment rose by 1.6% in September from 96.6 in Augustto 98.2 in September
we have seen an encouraging improvement in this componentwhich has increased by 11.4%. However it is still at a historicallylow level. For example the average print of that component duringthat 2008/09 period when the Index registered 16 consecutivemonths below 100 was 105.2 – today’s print of 96.2 is still wellbelow that average. We can only conclude that respondentsremain concerned about their finances despite the recent rally.This survey also provides a quarterly update on respondents’savings preferences. There was a sharp increase in the proportionof those respondents who assess bank deposits to be the wisestplace for savings, with that proportion increasing from 32.6%in June to 39.0% in September. That proportion is the highestproportion since December 1974 and comfortably exceeds thepeak proportion during the 2008/09 period of 36.9%. For thissurvey the 6.4ppt increase in preference for bank deposits was atthe expense of real estate which fell from 25.0% in June to 19.8%in September. The proportion of respondents favouring sharesstayed near record lows at 5.5%, while the proportion opting for‘pay down debt’ was steady at 20.4%.If we compare the total proportion of respondents who preferconservative savings options, covered by bank and other formsof deposits in conjunction with “pay down debt” the currentproportion registers 63.5% of respondents. That compares with64.2% in December 2008 when we were at the height of riskaversion during the Global Financial Crisis. In short, respondentsare exhibiting a similar level of risk aversion in terms of theirsavings preferences as we saw in 2008.The Reserve Bank Board next meets on October 2. Our forecasthas been and remains that the Bank will decide to cut the officialcash rate by 50bps over two meetings by year’s end. The casefor lower rates is strong. Inflation remains well contained andthe Bank’s own forecast has inflation remaining consistent withthe target over the next one to two years. Interest rates are onlyslightly below neutral levels. The June quarter national accountsshowed that consumer spending is slowing and investmentin residential construction and plant and equipment has beencontracting for the last few quarters. Despite a near 10% fall inthe terms of trade the Australian dollar has failed to perform itsusual ‘shock absorber’ role. Fiscal policy at both Federal and
Consumer Sentiment
6070809010011012013060708090100110120130Sep-90 Sep-94 Sep-98 Sep-02 Sep-06 Sep-10indexindex
Sources: Westpac Economics, Melbourne Institute

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