Westpac Banking : MI Consumer Sentiment March (PDF 76KB)

BULLETIN

9 March 2022

Consumers rattled by inflation, floods, war and housing concerns

The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 4.2% to 96.6 in March from 100.8 in February.

This is the weakest print since September 2020, which is also the last time the index was below the 100-level indicating that pessimists outnumber optimists. That previous low marked the end of a fifteen-month run of pessimism that began when the economy hit a flat patch in the second half of 2019 and worsened dramatically with the onset of the global pandemic just over two years ago.

The survey was conducted in the week of February 28 to March

4. It would have captured most of the response to the south-east Queensland and Northern NSW floods but preceded most of the current disasters in greater Sydney. Confidence in rural areas generally was quite resilient in the survey, probably reflecting the encouraging developments in agricultural commodity prices and growing conditions across wider rural Australia.

Consumer Sentiment Index

130	index				index	130
120						120
110						110
100						100
90						90
80						80
70	Sources: Westpac Economics, Melbourne Institute			70
Mar-06	Mar-10	Mar-14	Mar-18	Mar-22

On the other hand, confidence in Brisbane plummeted by 11.2%, contrasting with Melbourne which has been unaffected by the floods where confidence was down by only 3.4%.

The latest monthly fall comes as no surprise. The war in Ukraine; the floods in south- east Queensland and Northern NSW; ongoing concerns about inflation and higher interest rates were all likely to impact confidence, although the size of the decline is still notable.

Our special questions in this survey highlight the main areas of concern.

Every quarter we ask consumers about their recall and views on recent news coverage across a range of topics. Typically, we find that the state of the economy is the most recalled topic. In today's survey 40.6% of respondents had an opinion on economic news. That proportion is up from 28.5% a year ago.

But it is inflation news that has really exploded. A year ago, just 8.6% of respondents recalled news on inflation. That proportion jumped to 38.7% in March, a fourteen year high.

Not surprisingly there was also a significant lift in the proportion of respondents recalling international news - lifting from 6.9% a year ago to 18.6% in today's survey.

Awareness of interest rate developments has also risen with the proportion recalling news on this topic lifting from 6.9% to 18.1%.

Meanwhile assessments of all news have deteriorated sharply. A year ago, 43% of respondents saw news on the economy as unfavourable - that has lifted to 77%. The proportion viewing inflation news as negative is a very high 83%; while 87% assessed news on international conditions as negative.

We also ask a specific question on the outlook for interest rates. Just over two thirds of Australians expect interest rates to increase over the next year - the highest proportion since August 2011.

Some of these themes were also evident across the Index components.

All five sentiment sub-indexes recorded declines in March.

Views on the economic outlook recorded the sharpest pull- back. The 'economy, next 12 months' sub-index fell by 6.7% while the 'economy, next 5 years' sub-index was down by 5.8%.

Inflation issues already look to be weighing on both finances and spending intentions. The component 'finances vs a year ago' sub-index fell by 3.9%, no doubt partly reflecting the recent weakness in the share market and the 25% lift in petrol prices since the beginning of the year, compounded by the fear that there is a lot more to come. The 'time to buy a major household item' sub-index also fell by 4.4% as prices of many imported goods have risen in response to the disrupted supply chains and a sharp surge in freight costs.

Consumers' labour market views remained consistently strong in March. The Westpac Melbourne Institute Index of Unemployment Expectations fell 1.1% to 101.8 in March from 102.8 in February.

The Index captures expectations for unemployment, a lower read indicating more consumers expect unemployment to fall and thus greater confidence in the market. The March print is the third lowest since February 2011 and about as it good as it gets. Despite their many other concerns, consumers are still clearly very positive about the labour market.

Consumer risk aversion remains firmly entrenched. The March survey included an update on our additional question about where consumers see the 'wisest place for savings'. Safe options remain heavily favoured - over half of consumers nominating either bank deposits (31%) or 'pay down debt' (22%)

• while very few are inclined towards 'riskier' options, only 10% nominating 'real estate' and 11% favouring shares. This continues a pattern that has dominated for over two years now.

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 are reasonable, 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.

Bulletin

1

9 March 2022

Confidence around the housing market is deteriorating sharply.

The 'time to buy a dwelling' index fell by 7.7% to 78.3, down 40.6% from its recent peak in November 2020. The latest fall was most pronounced in NSW where the state index dropped 13.4% to be 10-15% below the other major states. The national index is now at its lowest level since February 2008, during the Global Financial Crisis and well below the 90-95 levels seen in 2017-18, when housing markets were particularly weak.

We have found housing affordability to be a key driver of this index. The combination of a 27% surge in dwelling prices nationally over the last year and a half; rising fixed mortgage rates; and the prospect of higher standard variable rates is clearly weighing heavily on homebuyer sentiment.

Arguably the most eye-catching aspect of today's survey is the 10.8% fall in the Westpac Melbourne Institute House Price Expectations Index. At 139.0 the Index is still well above 100, meaning that most consumers still expect prices to rise. However, that confidence is now starting to erode quite quickly. The weakness was across all major states, with NSW (-12.9%) and Western Australia (-14.5%) recording the largest declines.

Westpac expects national measures of dwelling prices to begin falling in the December quarter following rate increases from the Reserve Bank in August and October. From our perspective, it is surprising that we have not seen a sharper fall in the House Price Expectations Index to date - we saw sustained periods of sub-100 reads during the

2018-19 and 2020 correction periods. That said, official rate hikes - which we expect to be the key catalyst this time around

- are yet to be fully factored into consumers' house price views.

The Reserve Bank Board next meets on April 5. The Board is currently in a holding pattern, awaiting more data, particularly on inflation; wages growth; and the unemployment rate. By that meeting it will have seen the US Federal Reserve's first increase of the federal funds rate (widely expected to be delivered on March 17).

We retain our view that the first move in this cycle will be on August 2, following two more inflation reports on April 27 and July 27. We expect that the April 27 inflation report and the May 18 wages report will motivate the Board and Bank executives to gradually moderate their current 'patient' policy stance during June and July in preparation for the August move

Bill Evans, Chief Economist, ph (61-2) 8254 8531

Consumer Sentiment - March 2022

Item	avg*	Mar 2020	Mar 2021	Feb 2022	Mar 2022	%mth	%yr
Consumer Sentiment Index	101.4	91.9	111.8	100.8	96.6	-4.2	-13.6
Family finances vs a year ago	89.3	82.7	91.3	86.8	83.3	-3.9	-8.7
Family finances next 12mths	107.5	97.3	111.6	106.4	106.0	-0.4	-4.9
Economic conditions next 12mths	91.1	77.9	113.8	97.1	90.6	-6.7	-20.4
Economic conditions next 5yrs	92.0	90.4	118.9	105.2	99.3	-5.6	-16.5
Time to buy a major household item	126.4	111.4	123.7	108.6	103.7	-4.4	-16.1
Time to buy a dwelling	118.3	111.8	116.4	84.9	78.3	-7.7	-32.7
Unemployment Expectations Index	129.6	146.1	112.0	102.8	101.8	-1.1	-9.2
House Price Expectations Index	124.8	141.7	159.5	155.8	139.0	-10.8	-12.9

Source: Westpac-Melbourne Institute.

*avg over full history of the survey, all indexes except 'time to buy a dwelling', 'unemployment expectations' and 'house price expectations' are seasonally adjusted

Survey interviews are conducted by OZINFO Research on the telephone using trained interviewers. Telephone numbers and the household respondent are selected at random. This latest survey is based on 1200 adults aged 18 years and over, across Australia. It was conducted in the week from 28 February to 4 March 2022. The data

have been weighted to reflect Australia's population distribution. Copyright at all times remains with the Melbourne Institute of Applied Economic and Social Research.

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 are reasonable, 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.

Bulletin

2

DISCLAIMER

© Copyright 2022 Westpac Banking Corporation

Things you should know.

Westpac Institutional Bank is a division of Westpac Banking Corporation ABN 33 007 457 141 ('Westpac').

Disclaimer

This material contains general commentary only and is not intended to constitute or be relied upon as personal financial advice. To the extent that this material contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs, and because of this, you should, before acting on it, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs, and, the disclosure documents (including any product disclosure statement) of any financial product you may consider. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This material may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure the information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of the information, or otherwise endorses it in any way. Except where contrary to law, Westpac and its related entities intend by this notice to exclude liability for the information. The information is subject to change without notice and none of Westpac or its related entities is under any obligation to update the information or correct any inaccuracy which may become apparent at a later date. The information contained in this material does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter

a legally binding contract. Past performance is not a reliable indicator of future performance. 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.

Country disclosures

Australia: Westpac holds an Australian Financial Services Licence (No. 233714). This material is provided to you solely for your own use and in your capacity as a client of Westpac.

For XYLO Foreign Exchange clients: This information is provided to you solely for your own use and is not to be distributed to any third parties. XYLO Foreign Exchange is a division of Westpac Banking Corporation ABN 33 007 457 141 and Australian credit licence 233714. Information is current as at date shown on the publication. 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. XYLO Foreign Exchange's combined Financial Services Guide and Product Disclosure Statement can be obtained by calling XYLO Foreign Exchange on 1300 995 639, or by emailing customercare@ XYLO.com.au.

New Zealand: In New Zealand, Westpac Institutional Bank refers to the brand under which products and services are provided by either Westpac or Westpac New Zealand Limited ("WNZL"). Any product or service made available by WNZL does not represent an offer from Westpac or any of its subsidiaries (other than WNZL). Neither Westpac nor its other subsidiaries guarantee or otherwise support the performance of WNZL in respect of any such product. The current disclosure statements for the New Zealand branch of Westpac and WNZL can be obtained at the internet address www.westpac.co.nz. For further information please refer to the Product Disclosure Statement (available from your Relationship Manager) for any product for which a Product Disclosure Statement is required, or applicable customer agreement. Download the Westpac NZ QFE Group Financial Advisers Act 2008 Disclosure Statement at www.westpac.co.nz.

China, Hong Kong, Singapore and India: This material has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (as defined in the applicable Singapore laws and regulations) only. Recipients in Singapore of this material should contact Westpac Singapore Branch in respect of any matters arising from, or in connection with, this material. Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore. Westpac Hong Kong Branch holds a banking license and is subject to supervision by the Hong Kong Monetary Authority. Westpac Hong Kong branch also holds a license issued by the Hong Kong Securities and Futures Commission (SFC) for Type 1 and Type 4 regulated activities. This material is intended only to "professional investors" as defined in the Securities and Futures Ordinance and any rules made under that Ordinance. Westpac Shanghai and Beijing Branches hold banking licenses and are subject to supervision by the China Banking and Insurance Regulatory Commission (CBIRC). Westpac Mumbai Branch holds a banking license from Reserve Bank of India (RBI) and subject to regulation and supervision by the RBI.

UK: The contents of this communication, which have been prepared by and are the sole responsibility of Westpac Banking Corporation London and Westpac Europe Limited. Westpac (a) has its principal place of business in the United Kingdom at Camomile Court, 23 Camomile Street, London EC3A 7LL, and is registered at Cardiff in the UK (as Branch No. BR00106), and (b) authorised and regulated by the Australian Prudential Regulation Authority in Australia. Westpac is authorised in the United Kingdom by the Prudential Regulation Authority. Westpac is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. Westpac Europe Limited is a company registered in England (number 05660023) and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

This communication is being made only to and is directed at (a) persons who have professional experience in matters relating to investments who fall within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (b) high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). Any person who is not a relevant person should not act or rely on this communication or any of its contents. The investments to which this communication relates are only available to and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such investments will be engaged in only with, relevant persons.

Disclaimer continued overleaf

Bulletin

3

DISCLAIMER

Disclaimer continued

Any person who is not a relevant person should not act or rely upon this communication or any of its contents. In the same way, the information contained in this communication is intended for "eligible counterparties" and "professional clients" as defined by the rules of the Financial Conduct Authority and is not intended for "retail clients". With this in mind, Westpac expressly prohibits you from passing on the information in this communication to any third party. In particular this communication and, in each case, any copies thereof may not be taken, transmitted or distributed, directly or indirectly into any restricted jurisdiction. This communication is made in compliance with the Market Abuse Regulation (Regulation(EU) 596/2014).

Investment Recommendations Disclosure

The material may contain investment recommendations, including information recommending an investment strategy. Reasonable steps have been taken to ensure that the material is presented in a clear, accurate and objective manner. Investment Recommendations for Financial Instruments covered by MAR are made in compliance with Article 20 MAR. Westpac does not apply MAR Investment Recommendation requirements to Spot Foreign Exchange which is out of scope for MAR.

Unless otherwise indicated, there are no planned updates to this Investment Recommendation at the time of publication. Westpac has no obligation to update, modify or amend this Investment Recommendation or to notify the recipients of this Investment Recommendation should any information, including opinion, forecast or estimate set out in this Investment Recommendation change or subsequently become inaccurate.

Westpac will from time to time dispose of and acquire financial instruments of companies covered in this Investment Recommendation as principal and act as a market maker or liquidity provider in such financial instruments.

Westpac does not have any proprietary positions in equity shares of issuers that are the subject of an investment recommendation.

Westpac may have provided investment banking services to the issuer in the course of the past 12 months.

Westpac does not permit any issuer to see or comment on any investment recommendation prior to its completion and distribution.

Individuals who produce investment recommendations are not permitted to undertake any transactions in any financial instruments or derivatives in relation to the issuers covered by the investment recommendations they produce.

Westpac has implemented policies and procedures, which are designed to ensure conflicts of interests are managed consistently and appropriately, and to treat clients fairly.

The following arrangements have been adopted for the avoidance and prevention of conflicts in interests associated with the provision of investment recommendations.

1. Chinese Wall/Cell arrangements;

1. physical separation of various Business/Support Units; III. Strict and well defined wall/cell crossing procedures; IV. a "need to know" policy;

V. documented and well defined procedures for dealing with conflicts of interest;

VI. reasonable steps by Compliance to ensure that the Chinese Wall/Cell arrangements remain effective and that such arrangements are adequately monitored.

U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission ("CFTC") as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. Westpac Capital Markets, LLC ('WCM'), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 ('the Exchange Act') and member of the Financial Industry Regulatory Authority ('FINRA'). This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on [phone]. All disclaimers set out with respect to Westpac apply equally to WCM.

Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.

The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.

Bulletin

4