Transcript slides

Attitude: Does a little
thing make a big
difference?
An analysis of the Westpac-Melbourne
Institute consumer sentiment index and its
component indices
Danielle Brooker
Outline
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Significance of consumer sentiment surveys
Westpac-Melbourne Institute consumer
sentiment survey
Recent trends
Purpose of the research
Methodology
Key results
Consumer sentiment
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Link between future and present economic activity
Indicators of growth and spending
Assist decision making
In the context of the global financial crisis, watched
closely by economists
Westpac-Melbourne Institute
Consumer Sentiment Survey
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Conducted over a period of four days in the first half
of the month
1200 respondents
Available three months before release of official
economic indicators
Westpac-Melbourne Institute
Consumer Sentiment Survey
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Five questions:
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Current and prospective household financial situation
12 month and 5 year economic outlook
Current buying conditions for major household items
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Reflects respondents’ views
Index is unweighted average of the five components
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Net balance of positive and negative responses
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Recent trends
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Mostly experienced falls since January 2008
Index remained below 100 from February 2008 to
May 2009
However, for the past four months the index has
risen and stayed above the 100 mark
The latest results show that sentiment rose by 5.2
per cent in September 2009 to 119.3 index points
Consumer sentiment index
130.0
11 per cent fall from
Sep to Oct 2008
120.0
110.0
100.0
90.0
Increased
for the past
four months
80.0
Se
p9
M 9
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-0
Se 0
p0
M 0
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Se 01
p0
M 1
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Se 02
p0
M 2
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Se 03
p0
M 3
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Se 04
p0
M 4
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-0
Se 5
p0
M 5
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Se 06
p0
M 6
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-0
Se 7
p0
M 7
ar
Se 08
p0
M 8
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Se 09
p09
70.0
Consumer Sentiment Index, SA
34-year average
10-year average
Leading characteristics
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Preliminary graphical analysis shows that consumer
sentiment appears to lead changes in GDP
Consumption expenditure accounts for almost
60 per cent of GDP on average
Component indices are expected to show the
strongest relationship with changes in consumption
expenditure
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change in consumer sentiment index (%)
20.0
15.0
5.0
3.5
3.0
0.0
2.5
-5.0
2.0
-10.0
1.5
-15.0
1.0
-20.0
0.5
-25.0
0.0
consumer sentiment index
GDP growth
through the year change in GDP (%)
Leading characteristics
5.0
4.5
10.0
4.0
Purpose of the research
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Analyse extent to which component indices are
indicators of economic growth, consumption and
other economic variables
Identify leading or lagging characteristics
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Extends past research
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Includes most recently available data
Initial effects of the global financial crisis
Component indices
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FIN:
Family finances compared to a year ago
FIN12:
Family finances for the next 12 months
ECON:
Economic conditions for the next 5 years
ECON12:
Economic conditions for the next 12 months
HH:
Time to buy household items
Economic indicators
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Private consumption expenditure
Average weekly earnings
Disposable income
Consumer price index
Variable mortgage rates
Price return on all ordinaries index
Petrol prices
House prices
GDP
Unemployment rate
Exchange rate
Theoretical specification
Consumer sentiment index (CSI) =
f(GDP, UE, CPI, I, WAGE, YD, ER), where
GDP = growth in real gross domestic product
 UE = unemployed rate
 CPI = consumer price index
 i = interest rate
 WAGE = wage rate
 YD = average disposable income
 ER = exchange rate
Where CSI = [FIN + HH + FIN12 + ECON12 + ECON] / 5
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Methodology
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June quarter 1980 – March quarter 2009
Simple regression analysis
Tested for up to four leads and lags
Expected relationships and signs
Main analysis focussed on simple statistical
interpretations of t statistics, p values, R2
Expected relationships
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Expected relationship between private consumption expenditure
and the ‘financial situation’ index
Better-off compared to a year ago
Confidence in finances improved
More likely to increase consumption (available finances)
Increased consumption expenditure
Results
Dependent variable
Family finances compared to a year ago
Family finances for the next 12 months
Economic conditions for the next five years
Economic conditions for the next 12 months
Time to buy household items
Significant independent variables
disposable income
consumer prices
consumption expenditure
mortgage rates
disposable income
consumption expenditure
mortgage rates
GDP
consumption expenditure
unemployment rate
GDP
consumption expenditure
unemployment rate
exchange rates
disposable income
consumption expenditure
house prices
Financial situation compared
to a year ago
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Correlated best with:
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Current disposable income
Future consumer prices
Future mortgage rates
Future consumption expenditure
Dependent variable
Independent variable
Lead (quarters)
disposable income
current
1
consumer price index
Family finances compared to a year ago
2
3
consumption
1
2
mortgage rates
3
Financial situation compared
to a year ago
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Best indicator of consumption if lagged by one to
two quarters
Can be explained by cumulative effect of
consumers’ behaviour
The better they ‘feel’ about financial circumstances,
the more likely they are to consume goods and
services
Consumers may also be forward looking
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nS e 08
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D - 08
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M 08
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-0
9
change in FIN index (%)
40.0
30.0
5.0
10.0
4.0
0.0
3.0
-10.0
-20.0
2.0
-30.0
1.0
-40.0
0.0
financial situation compared to a year ago
consumption expenditure
change in consumption expenditure (%)
The financial situation compared to a year ago
and private consumption expenditure
7.0
6.0
20.0
Financial situation in
12 months
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Correlated best with:
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Future disposable income
Future private consumption expenditure
Consumption expenditure:
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shows that deterioration in consumers’ outlook for financial
conditions will affect consumption in three quarters time
Dependent variable
Family finances for the next 12 months
Independent variable
Lead (quarters)
disposable income
3
consumption
3
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nS e 08
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D - 08
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change in FIN12 index (%)
25.0
10.0
5.0
5.0
4.0
0.0
-5.0
3.0
-10.0
2.0
-15.0
1.0
-20.0
-25.0
0.0
financial situation in the next 12 months
consumption expenditure
change in consumption expenditure (%)
The financial situation in 12 months
and private consumption expenditure
7.0
20.0
6.0
15.0
Economic situation in 5 years
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Correlated best with:
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GDP
Unemployment rate
Consumption expenditure
Dependent variable
Independent variable
Lead (quarters)
GDP
2
3
Economic conditions for the next 5 years
consumption
3
4
unemployment
3
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change in ECON index (%)
30.0
10.0
5.0
3.0
0.0
-5.0
2.0
-10.0
1.0
-15.0
-20.0
0.0
economic conditions in next 5 years
GDP (annual growth rate)
change in GDP (%)
Economic situation in 5 years and
change in gross domestic product
6.0
25.0
20.0
5.0
15.0
4.0
Economic situation in
12 months
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Correlated best with:
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GDP
Consumption expenditure
Unemployment rate
Consumer price index
Exchange rates
Dependent variable
Independent variable
Lead (quarters)
GDP
1
2
Economic conditions for the next 12 months
consumption
3
unemployment
2
3
consumer price index
4
exchange rates
current
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change in ECON12 index (%)
100.0
40.0
20.0
3.0
0.0
2.0
-20.0
1.0
-40.0
-60.0
0.0
economic conditions in next 12 months
GDP (annual growth rate)
change in GDP (%)
Economic situation in 12 months and
change in gross domestic product
6.0
80.0
5.0
60.0
4.0
Time to buy household items
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Correlated best with:
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Consumption expenditure
Disposable income
House prices
Dependent variable
Independent variable
Lead (quarters)
consumption
3
4
Time to buy household items
disposable income
4
house prices
2
3
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nS e 00
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-0
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change in HH index (%)
40.0
7.0
30.0
6.0
20.0
5.0
10.0
4.0
0.0
3.0
-10.0
2.0
-20.0
1.0
-30.0
0.0
time to buy household items
consumption expenditure
change in consumption expenditure (%)
The time to buy household goods
and consumption expenditure
Summary
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Component indices provide useful indicators of
economic variables
Leading characteristics
Most significant relationship with consumption
expenditure
Further research
Survey questions
Q1 Financial Situation
 First about how people are getting along financially
these days? Would you say you and your family are
better-off financially or worse-off than you were at
this time last year?
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1. Better-off
2. Same
3. Worse-off
4. Uncertain/Don’t Know/It depends
Q2 Future Financial Situation
 Looking ahead to this time next year. Do you expect
you and your family to be better-off financially, or
worse-off, or about the same as now?
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1. Better-off
2. Same
3. Worse-off
4. Uncertain/Don’t Know/It depends
Q3 Future Economic Conditions
 Thinking of economic conditions in Australia as a
whole. During the next 12 months, do you expect
we’ll have good times financially, or bad times, or
what?
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1. Good times
2. Good with qualifications
3. Some good, some bad
4. Bad with qualifications
5. Bad times
6. Uncertain/Don’t Know/It depends
Q4 Five-Year Economic Forecast [ECON]
 Looking ahead, what would you say is more likely?
That in Australia as a whole, we’ll have continuous
good times during the next five years or so, or we’ll
have some bad times—or what?
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1. Continuous good times
2. Good with qualifications
3. Some good, some bad
4. Some bad with qualifications
5. Some bad times
6. Uncertain/Don’t Know/It depends
Q5 Consumer Buying Intentions
 Next, about the major things people buy for their
homes. Speaking generally, do you think now is a
good time or a bad time, for people to buy major
household items?
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1. Good
2. Some good, some bad
3. Bad
4. Don’t know/Uncertain