Consumer expectations

Inflation & unemployment expectation chart pack.

February 2013

Inflation expectations trending around 2%yr
7 % ann
trend median

% ann

7

6
5 4

6
5 4

3
2 1 0 Feb-97 Feb-01 Feb-05 Feb-09

3
2 1 0 Feb-13

2

Carbon price boost small & temporary
7 % 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

6
5 4 3 2 1 0

-1 Jan-98

Sources: ABS, Westpac Economics, Melbourne Institute

Jan-01

Jan-04

Jan-07

Jan-10

-1 Jan-13

3

Very few households expecting price rises
% 100 90
CPI (rhs)
average since 1995

% ann
*% expecting prices to rise minus % expecting prices to fall

7 6 5 4 3 2

net balance (lhs)*

80
70 60 50 40 Feb-98
Sources: ABS, Westpac Economics, Melbourne Institute

1

0
Feb-01 Feb-04 Feb-07 Feb-10 -1 Feb-13

4

Labour market concerns, the trend has peaked
index 200
unemployment expectations
Sources: Westpac-MI

index 200
unemployment expectations trend
unemployment expected to rise

180

peak, Feb ’09

180

160
140 120 100 80 Feb-88

160
140 120

unemployment expected to fall

100 80 Feb-13

Feb-93

Feb-98

Feb-03

Feb-08

5

… but still points to a rising unemployment rate
bps 400 300
annual change in unemployment rate smoothed (lhs) unemployment expectations trend (rhs)
unemployment rising

index

200 180 160 140 120 100

200
100 0 -100
unemployment falling

-200 Feb-88

Sources: Westpac-MI

Feb-93

Feb-98

Feb-03

Feb-08

80 Feb-13

6

Unemploy. expect map lack of real jobs strength
-60 -40 -20 0 20 40 Feb-95 Feb-99 Feb-03 Feb-07 Feb-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

7

Unemp. exp. improving in a trend sense ...
-30 -20 % inverted
Sources: Westpac-MI, ABS *trend represented as deviation from 10 year average

% 3mth

2.0 1.5 1.0 0.5

-10
0 10

20
30 40
unemploy. exp* (lhs leading 2mths) trend full-time employ (rhs) full-time employ(rhs)

0.0
-0.5 -1.0

50 Jan-99

-1.5
Jan-03 Jan-07 Jan-11

8

...suggesting the jobs market is still precarious.
-40 -30 % deviation
* represented as deviation from full history average

% 3mth
Sources: Westpac-MI, ABS

1.5 1.0 0.5 0.0

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

-0.5 -1.0

Feb-03

Feb-07

Feb-11

9

Unemployment expect. track hours worked...
-50 -30 % long run average
% yr
Sources: Westpac-MI, ABS

5.0

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

-3.0

-5.0
Jan-07 Jan-11

Jan-99

Jan-03

10

...pointing to further near term weakness.
-50 -40 -30 1.0 % long run average
% 3mth
Sources: Westpac-MI, ABS

1.5

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

0.5
0.0 -0.5 -1.0

50 Jan-95

-1.5
Jan-99 Jan-03 Jan-07 Jan-11

11

Improved job sentiment amongst those in jobs
150 140

index
working

Long run average = 100

index

150 140

130
120 110 100

unemploy/retired/not working

130
120 110 100

90
80 70
Sources: Westpac-MI

90
80 70 60 Feb-03 Feb-06 Feb-09 Feb-12

60 Feb-00

12

Big improvement for labourers/operators
160 150 140 130

index Unemployment expectations by occupation LR ave = 100 index
manager/prof labourer/operator paraprof/trades sales/clerical

150 140

130
120 110 100

120 110 100 90 80 70 60 Feb-00

90
80 70
Sources: Westpac-MI

60 Feb-03 Feb-06 Feb-09 Feb-12

13

Expectations now similar by educational level
150 140

index Unemployment expectations by occupation LR ave = 100 index
Primary Secondary Tertiary Trade

150 140

130
120 110 100

130
120 110 100

90
80 70
Sources: Westpac-MI

90
80 70 60 Feb-03 Feb-06 Feb-09 Feb-12

60 Feb-00

14

Slight gap between males & females now gone
160 150 140 130

index Unemployment expectations by occupation LR ave = 100 index

Male

Female

160 150 140 130

120 110 100 90 80 70 60 Feb-00

Sources: Westpac-MI

120 110 100 90 80 70 60

Feb-03

Feb-06

Feb-09

Feb-12

15

Those without kids a touch more pessimistic
160 150 140 130

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 Feb-00

Sources: Westpac-MI

120 110 100 90 80 70 60

Feb-03

Feb-06

Feb-09

Feb-12

16

No gap between home ownership groups
160 150 140 130

index Unemployment expect by household type LR ave = 100 index
Tenant

Mortgagor
Owned

160 150 140 130

120 110 100 90 80 70 60 Feb-00

Sources: Westpac-MI

120 110 100 90 80 70 60

Feb-03

Feb-06

Feb-09

Feb-12

17

2013 improvement is ex Sydney & Melbourne
160 150 140 130

index

Unemployment expectations by state LR ave = 100
Sydney
Melbourne

index

Remaining cities

160 150 140 130

120 110 100 90 80 70 60 Feb-00

Sources: Westpac-MI

120 110 100 90 80 70 60

Feb-03

Feb-06

Feb-09

Feb-12

18

Notable turnaround in mining states
index
160
NSW WA

Unemployment expectations by state LR ave = 100

index
160 140

140
Vic Qld

120
100

120
100

80
Sources: Westpac-MI

80
60 Feb-03 Feb-06 Feb-09 Feb-12

60 Feb-00

19

Country dwellers more positive: rain effect?
150 140

index

Unemployment expectations by state LR ave = 100

index

150 140

130
120 110 100

Urban Rural

130
120 110 100

90
80 70
Sources: Westpac-MI

90
80 70 60 Feb-03 Feb-06 Feb-09 Feb-12

60 Feb-00

20

Lingering job worries = case for further easing
300 200 100 0 -100 -200 -300 -400 -500 Dec-00
forecasts
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

annual change in RBA cash rate (lhs)

160
180
Source: Westpac-MI

unemployment expectations trend (rhs)

Dec-03

Dec-06

Dec-09

Dec-12

21

…as does the pace of change in expectations.
300 200 bps
When unemployment expectations improve, the RBA tightens monetary policy

%yr

-48 -32

100
0 -100 -200
When unemployment expectation deteriorate, the RBA eases monetary policy

-16
0 16 32

-300
-400 -500 Dec-00

annual change in RBA cash rate (lhs) forecasts change in expectations (rhs)
Source: Westpac-MI

48
64 80 Dec-09 Dec-12

Dec-03

Dec-06

22

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