Consumer expectations

Inflation & unemployment expectation chart pack.

January 2013

Inflation expectations trending below 2%yr

7 6 5 4 3 2 1 0 Jan-97 Jan-01 Jan-05 Jan-09 % ann
trend median

% ann

7 6 5 4 3 2 1

0 Jan-13

Carbon price boost small & temporary

7 6 5 4 3 2 1 0 -1 Jan-98
Sources: ABS, Westpac Economics, Melbourne Institute

% ann
Spike higher pre GST introduction

% ann
CPI professionals trend consumers trend
A real inflation spike Carbon price boost very small

7 6 5 4 3 2 1 0

Jan-01

Jan-04

Jan-07

Jan-10

-1 Jan-13

There are less household expecting price rises

% 100 90 80 70 60 50 40 Jan-98
Sources: ABS, Westpac Economics, Melbourne Institute

% ann
CPI (rhs) net balance (lhs)
The net balance is the share of those who think prices are rising less the share of those thinking prices are falling.

Net balance average since 95

7 6 5 4 3 2 1 0

Jan-01

Jan-04

Jan-07

Jan-10

-1 Jan-13

Labour market concerns, the trend has peaked

index 200
unemployment expectations
Sources: Westpac-MI

index 200
unemployment expectations trend
unemployment expected to rise peak, Feb 09

180 160 140 120 100 80 Jan-88

180 160 140 120

unemployment expected to fall

100 80 Jan-13

Jan-93

Jan-98

Jan-03

Jan-08

and point to a rising unemployment rate.

bps 400 300 200 100 0 -100
unemployment falling unemployment rising

index
annual change in unemployment rate smoothed (lhs) unemployment expectations trend (rhs)

200 180 160 140 120 100

-200 Jan-88

Sources: Westpac-MI

Jan-93

Jan-98

Jan-03

Jan-08

80 Jan-13

Unemploy. expect map lack of real jobs strength

-60 -40 -20 0 20 40 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11 % long run average
unemploy. expectations (lhs leading 4mths) change in employ/pop ratio (rhs)

bps tty
Sources: Westpac-MI, ABS

250 200 150 100 50 0 -50 -100 -150

Unemp. exp. improving in a trend sense ...

-30 -20 -10 0 10 20 30 40 50 Jan-99
unemploy. exp* (lhs leading 2mths) trend full-time employ (rhs) full-time employ(rhs)

% inverted
Sources: Westpac-MI, ABS *trend represented as deviation from 10 year average

% 3mth

2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5

Jan-03

Jan-07

Jan-11

...suggesting the jobs market is still precarious.

-40 -30 -20 -10 0 10 20 30 40 50 Jan-99
unemployment expectations trend* (lhs leading 2mths) trend total employment (rhs) total employment (rhs)

% deviation
* represented as deviation from full history average

% 3mth
Sources: Westpac-MI, ABS

1.5 1.0 0.5 0.0 -0.5 -1.0

Jan-03

Jan-07

Jan-11

Unemployment expect. track hours worked...

-50 -30 3.0 -10 1.0 10 -1.0 30 50 Jan-95
unemploy. expectations (lhs leading 4mths) hours worked %yr (rhs)

% long run average

% yr
Sources: Westpac-MI, ABS

5.0

-3.0 -5.0

Jan-99

Jan-03

Jan-07

Jan-11

10

...pointing to further near term weakness.

-50 -40 -30 -20 -10 0 10 20 30 40 50 Jan-95
unemploy. expectations* (lhs leading 1mth) trend hours worked (rhs)

% long run average

% 3mth
Sources: Westpac-MI, ABS

1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5

Jan-99

Jan-03

Jan-07

Jan-11

11

Job sentiment weakest in those working

150 140 130 120 110 100 90 80 70
Sources: Westpac-MI

index
working

Long run average = 100

index

150 140 130 120 110 100 90 80 70 60

unemploy/retired/not working

60 Jan-00

Jan-03

Jan-06

Jan-09

Jan-12

12

Managers & professionals most worried

160 150 140 130 120 110 100 90 80 70 60 Jan-00 index Unemployment expectations by occupation LR ave = 100 index
manager/prof labourer/operator paraprof/trades sales/clerical

160 150 140 130 120 110 100 90 80 70 60

Sources: Westpac-MI

Jan-03

Jan-06

Jan-09

Jan-12

13

Expectations now similar by sector

150 140 130 120 110 100 90 80 70
Sources: Westpac-MI

index Unemployment expectations by occupation LR ave = 100 index

Primary Secondary Tertiary Trade

150 140 130 120 110 100 90 80 70 60

60 Jan-00

Jan-03

Jan-06

Jan-09

Jan-12

14

Males a touch more nervous than females

160 150 140 130 120 110 100 90 80 70 60 Jan-00 index Unemployment expectations by occupation LR ave = 100 index
Male Female

160 150 140 130 120 110 100 90 80 70 60

Sources: Westpac-MI

Jan-03

Jan-06

Jan-09

Jan-12

15

Similar with or without children

160 150 140 130 120 110 100 90 80 70 60 Jan-00 index Unemployment expectations by family type LR ave = 100 index
Live with children<18 Does not live with child<18

160 150 140 130 120 110 100 90 80 70 60

Sources: Westpac-MI

Jan-03

Jan-06

Jan-09

Jan-12

16

Tenants are now the most nervous

160 150 140 130 120 110 100 90 80 70 60 Jan-00 index Unemployment expect by household type LR ave = 100 index
Tenant Mortgagor Owned

160 150 140 130 120 110 100 90 80 70 60

Sources: Westpac-MI

Jan-03

Jan-06

Jan-09

Jan-12

17

As other cities deteriorate, Sydney improves

160 150 140 130 120 110 100 90 80 70 60 Jan-00 index
Unemployment expectations by state LR ave = 100
Sydney Melbourne Remaining cities

index

160 150 140 130 120 110 100 90 80 70 60

Sources: Westpac-MI

Jan-03

Jan-06

Jan-09

Jan-12

18

as the labour market in WA unravels.

index 160
NSW WA

Unemployment expectations by state LR ave = 100

index 160 140

140
Vic Qld

120 100 80
Sources: Westpac-MI

120 100 80 60 Jan-03 Jan-06 Jan-09 Jan-12

60 Jan-00

19

No division between the city or country

150 140 130 120 110 100 90 80 70
Sources: Westpac-MI

index

Unemployment expectations by state LR ave = 100

index

150 140 130 120 110 100 90 80 70 60

Urban Rural

60 Jan-00

Jan-03

Jan-06

Jan-09

Jan-12

20

Level of job worries = an ongoing easing cycle

300 200 100 0 -100 -200 -300 -400 -500 Dec-00
forecasts unemployment expectations trend (rhs)
Source: Westpac-MI When unemployment expectation deteriorate, the RBA eases monetary policy

bps

Index invert.
When unemployment expectations improve, the RBA tightens monetary policy

80 100 120 140 160 180

annual change in RBA cash rate (lhs)

Dec-03

Dec-06

Dec-09

Dec-12

21

as does the pace of change in expectations.

300 200 100 0 -100 -200 -300 -400 -500 Dec-00
forecasts change in expectations (rhs)
Source: Westpac-MI When unemployment expectation deteriorate, the RBA eases monetary policy

bps
When unemployment expectations improve, the RBA tightens monetary policy

%yr

-48 -32 -16 0 16 32 48 64 80

annual change in RBA cash rate (lhs)

Dec-03

Dec-06

Dec-09

Dec-12

22

Disclaimer Disclaimer
Westpac Institutional Bank is a division of Westpac Banking Corporation ABN 33 007 457 141. Information current as at date above. This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Westpacs financial services guide can be obtained by calling 132 032, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is registered in England as a branch (branch number BR000106) and is authorised and regulated by The Financial Services Authority. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised and regulated by The Financial Services Authority. If you wish to be removed from our e-mail, fax or mailing list please send an e-mail to economics@westpac.com.au or fax us on +61 2 8254 6934 or write to Westpac Economics at Level 2, 275 Kent Street, Sydney NSW 2000. Please state your full name, telephone/fax number and company details on all correspondence. 2011 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

23

NSW full-time stronger than expectations

-50 -40 -30 -20 -10 0 10 20 30 40 50 Dec-94
unemploy. exp* (lhs) trend full-time employ (rhs)
*trend represented as deviation from 10 year average

% inverted
Sources: Westpac-MI, ABS

% 3mth

2.0

1.0

0.0

-1.0

-2.0 Dec-98 Dec-02 Dec-06 Dec-10

25

NSW hours worked still quite weak

-50 -40 -30 -20 -10 0 10 20 30 40 50 Nov-96 Nov-00 Nov-04 Nov-08 Nov-12
*trend represented as deviation from 10 year average

% inverted
Sources: Westpac-MI, ABS

% yr
unemploy. exp* (lhs leading 2 mths) trend hours worked (rhs)

6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0

26

Vic expectations now diverging from employ

-50 -40 -30 -20 -10 0 10 20 30 40 50 Oct-97
unemploy. exp* (lhs leading 2 mths) trend full-time employ (rhs)

% inverted
Sources: Westpac-MI, ABS *trend represented as deviation from 10 year average

% 3mth

2.0

1.0

0.0

-1.0

-2.0 Oct-01 Oct-05 Oct-09

27

Vic hours weaker than expectations

-50 -40 -30 -20 -10 0 10 20 30 40 50 Nov-96
unemploy. exp* (lhs leading 2 mths) trend hours worked (rhs)

% inverted
Sources: Westpac-MI, ABS *trend represented as deviation from 10 year average

% yr

6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0

Nov-00

Nov-04

Nov-08

Nov-12

28

Qld expectations still very weak

-50 -40 -30 -20 -10 0 10 20 30 40 50 Oct-98
unemploy. exp* (lhs leading 2 mths) trend full-time employ (rhs)
*trend represented as deviation from 10 year average

% inverted
Sources: Westpac-MI, ABS

% 3mth

3.0

2.0

1.0

0.0

-1.0 Oct-02 Oct-06 Oct-10

29

Qld expectations still very weak

-50 -40 -30 -20 -10 0 10 20 30 40 50 Dec-94
Sources: Westpac-MI, ABS *trend represented as deviation from 10 year average

% inverted
unemploy. exp* (lhs leading 3 mths) trend hours worked (rhs)

% yr

8.0 6.0 4.0 2.0 0.0 -2.0 -4.0

Dec-98

Dec-02

Dec-06

Dec-10

30

WA expectations much weaker than jobs

% inverted -50 Sources: Westpac-MI, ABS -40 -30 -20 -10 0 10 20 30 unemploy. exp* (lhs leading 2 mths) 40 *trend represented as deviation 50 trend full-time employ (rhs) from 10 year average 60 Jul-98 Jul-02 Jul-06
% 3mth

3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0

Jul-10

31