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AUSTRALIA WESTPAC-MELBOURNE CONSUMER SENTIMENT INDEX MELBOURNE INSTITUTE OF ECONOMIC INDICATORS AUCNFCONX

Westpac-Melbourne Institute Indexes of Economic Activity Westpac-Melbourne Institute Consumer Sentiment Index Westpac-Melbourne Institute Prospects for Consumer Demand Melbourne Institute Consumer Inflationary Expectations Housing Sentiment Indexes

Introduction

The Melbourne Institute of Applied Economic and Social Research and Westpac undertake monthly and quarterly surveys of consumer perceptions and expectations in Australia. The Surveys of Consumers cover three major topics: consumer sentiment, consumer inflationary expectations and household saving intentions. It began in 1973 and was conducted quarterly until 1976 and 6 weekly from 1976 to 1986. Since then it has been conducted monthly. Responses can be cross classified by age, sex, the presence of children, household size, voting intention, education, home ownership, state, capital city, education, occupation, household income, work status. Over 1200 people are interviewed each month and the sample is stratifies by age, sex and area of residence.

Methodology Leading index of economic activity The leading index of economic activity is a weighted average of nine economic series which typically lead economic activity by six to nine months. The index includes building approvals, share prices, materials prices, real money supply, over-time worked, gross operating surplus, labour costs and new telephone installations. Coincident index of economic activity The coincident index of economic activity is a weighted average of six economic series which are typically coincident with economic activity. The index aims to give a more upto-date picture of economic activity than conventional measures such as GDP. The

coincident index includes real retail trade, civilian employment, unemployment, industrial product, non-farm product and real household income. Leading index of inflation The leading index of inflation is a weighted average of six series which reflect future inflationary pressures. The index includes the employment/population ratio, wages, advances of credit and price indices of manufacturing materials.

Consumer Sentiment Monthly survey The Consumer Sentiment Index is the average of five responses on consumers evaluations of their household financial situation over the past year and the coming year, anticipations of economic conditions over the coming year and the next 5 years and a view on buying conditions for major household items. Quarterly survey Consumers are surveyed on their perceptions of changes to the level of unemployment over the coming year, buying conditions for cars and dwellings, the wisest place for savings and news about economic conditions. The latter specifically covers: politicians, government, taxation, wages, inflation, unemployment, money, the Australian dollar, business, economic conditions, farming, overseas influences, union power.

Consumer Inflationary Expectations Monthly survey Consumers are surveyed on whether and by how much they believe prices will go up or down. All data is copyright. Apart from any fair dealing for the purposes of study, research, criticism or review, as permitted under the Copyright Act, no part may be reproduced without written permission. Calculation The Consumer Sentiment Index is calculated as the balance of optimism for 5 questions on ones general economic outlook. The 5 questions include peoples assessment of: Current family finances Family finances over the coming 12 months Economic conditions in Australia over the coming 12 months Economic conditions in Australia over the next 5 years Whether it is a good or bad time to buy household items. Each question can be represented by an index which is equal to the (% of optimists minus % of pessimists) plus 100. The Consumer Sentiment Index is an average of the 5

component indexes. The Current Conditions index is the average of question 1 and 5 above. The Consumer Expectations index is the average of question 2, 3 and 4. The surveys were undertaken on an quarterly basis between 1974 and 1976. From 1976 to 1986 they were conducted on a 6 weekly basis. Since then they have been undertaken monthly, except January 1990. Thomson Financial have estimated by linear extrapolation for missing monthly values. The Consumer Sentiment Index is presented by geographic area and major economic and demographic variables. Both seasonally adjusted and unadjusted data are presented. Seasonal factors are based on data from February 1986 to December 1996 (excluding January 1990). Care has been taken when selecting cohorts to achieve a reasonable sample size and to minimise the standard errors of the estimates, all estimates other than those for Australia as whole, have been presented as a centred 3 month moving average. Tasmania has been presented as a 5 month centred moving average.

Economic Attitudes In addition to the Consumer Sentiment Index questions peoples attitude to the economic situation are ascertained: peoples expectation of unemployment over the coming 12 months, peoples expectations of inflation over the coming 12 months, economic news items recently heard in the media, peoples views on whether it is a good or bad time to buy a car, peoples views on whether it is a good or bad time to buy a dwelling, peoples views on where the wisest place to put their savings is, whether people plan to extend or renovate in the next 2 years, and whether people plan to buy a new or established dwelling in the next 2 years. Indexes are calculated to represent unemployment expectations, news heard, whether it is a good or bad time to but a car or a dwelling and whether people plan to extend, renovate or buy a new or existing dwelling in the next 2 years. Specifically, the index for unemployment expectations is (% who said more minus % who said less) plus 100. The index for buying conditions for cars and dwellings are similarly calculated as (% who said good minus % who said bad) plus 100. In the News recall level file, the percentage of people who report they have heard of specific news items over the last few months is recorded . The interviewers read out a list of 14 topics from politicians to unemployment and interest rates. If a person has heard a particular news item, they are asked whether or not they felt the news was favourable or unfavourable news. The News Heard Index is (% who said news item was favourable minus % who said news item was unfavourable) plus 100 for

each identified topic. This Favourability index is only based upon the views of people who reported hearing of a specific news item. The index for whether people plan to extent or renovate in the next 2 years is (% who said very likely 2 plus % who said likely) minus (% who said unlikely plus % who said very unlikely 2 ) plus 150. The index for whether people plan to buy an existing dwelling in the next 2 years is (% who said very likely 2 plus % who said likely) minus (% who said unlikely plus % who said very unlikely 2 ) plus 150. The index for whether people who plan to buy a new dwelling in the next 2 years is (% who said very likely 2 plus % who said likely) minus (% who said unlikely plus % who said very unlikely 2 ) plus 150. Inflationary expectations are presented as a median and a mean. The wisest place for savings is presented as the percentage distribution across different forms of asset. If a data point is blank it usually indicates that the survey was not run in that month or not data was recorded for that variable. No survey was conducted in January 1990. Extrapolations have been made for missing surveys by Thomson Financial Datastream. The data for ancillary economic attitude variables are presented by geographic area and major economic and demographic variables but no seasonal adjustment has been made. Most of the data is quarterly, but since July 1993, unemployment and inflationary expectations data has been collected monthly.