NAB Consumer Behaviour Survey: Q Summary Report by NAB Behavioural & Industry Economics Embargoed until: 11.

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1 NAB Consumer Behaviour Survey: Q1 216 Summary Report by NAB Behavioural & Industry Embargoed until: 11.3am 7 April 216 Consumer anxiety falls again despite growing concern over government policy ahead of the May federal budget. Government policy has joined the cost of living as the biggest contributor to overall consumer stress. Overall, anxiety has however now fallen for three straight quarters as the recovery in the non-mining economy remains on track and the rotation towards services activity continues to support the labour market. But, with weak national income and wages growth continuing to cap household consumption growth, spending behaviours remain conservative. NAB Consumer Anxiety Index fell to 6.4 points in Q1 216 (61.1 in Q4 215) to remain well below its long-term average (61.8). Lower anxiety was underpinned by diminished concerns over retirement funding, health expenditure and cost of living (albeit cost of living remains one of the biggest drivers of overall consumer stress). Job security remained stable and is still causing the least stress for consumers. But, with the Federal budget looming, anxiety related to government policy increased - almost 27% of Australians rated their anxiety high. Overall consumer anxiety has fallen below longterm averages in most states and territories, except in and Tasmania. Consumers remain most anxious in &, with much higher stress associated with government policy, cost of living and job security (especially in ). While over 1 in 4 consumers still rate their anxiety over cost of living high, anxiety levels have eased in the last 4 quarters to remain below the long-term average. Women continue to be much more anxious than men - particularly middle aged women (3-49) who have overtaken women 5+ as the most stressed. Men 5+ continue to rate consumer anxiety lowest. Low income earners remain the most anxious group in Australia. But, middle income earners ($5,- $,) were the only income groups to rate anxiety higher, with government, health and cost of living the main drivers. s reported the biggest increase in stress levels across all groups, with heightened concern across all anxiety questions, especially in relation to their job security. Spending behaviours in Q1 were more conservative in most spending categories (except children and health) and continue to be dominated by key essentials (utilities, transport & groceries) and paying down debt. Consumer anxiety fell for the third straight quarter to remain well below its long-term average Q1 213 Q2 213 Overall Consumer Anxiety: Trends (score out of where = "nil" anxiety and = "extreme" anxiety) series average Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 series high (Q2 214) series low (Q2 213) But, with the Federal budget looming, anxiety related to government policy increased. Mar-13 Jun-13 Overall Consumer Anxiety Index (score out of where = "nil" anxiety and = "extreme" anxiety) Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Anxiety Job Security Health Ability to Fund Retirement Cost of Living Government Policy And, spending behaviours remain conservative. Changes in Spending Behaviours (net balance) Dec-14 More consumers are spending on... Mar-15-2 Jun-15 Q2 215 Sep-15 Q3 215 Dec-15 Q4 215 Mar-16 Q1 216 Less consumers are spending on CONTACTS: Alan Oster - Chief Economist (3) Dean Pearson Head of Industry & Behavioural (3) Robert De Iure - Senior Economist Industry & Behavioural ( Brien McDonald - Senior Economist Industry & Behavioural (3) National Australia Bank - Group 1

2 NAB Consumer Behaviour Survey - Summary Q1 216 While spending on non-essentials was somewhat weaker over the quarter, it remains notably stronger than at the same time last year across most spending categories (and in all states bar Tasmania). In particular, notably fewer Australians cut back their spending on home improvements, travel, major household items, entertainment and eating out over the past year. Financing retirement, providing for the family s future and health expenses are still the main drivers of household financial stress. That said these drivers are creating less financial stress now compared with the same time last year - across nearly all categories, except education. Financing retirement still the main driver of household financial stress. Drivers of Household Financial Stress: (score out of where = "not at all concerned" and = "extremely concerned" Financing retirement Providing for family's future Medical bills/healthcare Raising $2, in emergency Mortgage, rent, housing costs Non-essentials (holidays, eating out) Monthly household bills Spending on many non-essentials is stronger than at the same time last year. Changes in Spending Behaviours (net balance) All drivers of household financial stress of less concern over the past year, except education. Drivers of Household Financial Stress (score out of where = "not at all concerned" and = "extremely concerned) 's education Food/basic necessities Personal loan repayments Credit card repayments Credit card repayments Personal loan repayments Food/basic necessities 's education Monthly household bills Non-essentials (holidays, eating out) Mortgage, rent, housing costs Raising $2, in emergency Medical bills/healthcare Providing for family's future Financing retirement Another way to show consumer spending behaviour is by grouping all non-essentials (entertainment, eating out, major household items, home improvements, personal goods and travel) essentials (medical, utilities, transport, groceries and children) and financial spending (paying off debt, savings/super/ and use of credit). Clearly, notwithstanding some moderation in the latest quarter (and across all broad spending groupings), it is encouraging that non-essential spending sentiment (as a broad proxy for consumer confidence ) has steadily improved from its low point in Q Consumers more confident over past year non-essential spending behaviours less negative Consumer Behaviour by Spending Type (net balance) spending more Q3'14 Q4'14 Q2'15 Q3'15 Non-essentials Essentials Financial behaviour The view from NAB On the back of sustained improvement in the labour market, consumer spending has gained momentum since late 215, evident by the strong print for household spending growth in Q4 215 National Accounts (.8% q/q and 2.9% y/y in real terms). That said, growth in household income has remained very weak of late, suggesting a compositional shift in the labour market towards lower-paid jobs. As such, the strength in household consumption was supported by a notable decline in the household savings rate, which fell to 7.6% from 8.7% in Q3, to be below 8% for the first time since before the GFC. Consumers willingness to spend has gained traction in recent months and we continue to expect moderate growth in consumer spending through 216. However there are risks with this trend contingent on a further pick-up in labour market conditions and some further decline in the household savings rate amidst subdued wages growth. Consumer confidence has also remained somewhat volatile of late amidst heightened concerns about global growth. Meanwhile, slower house price growth projected for most capital cities this year will also offer less impetus to consumer spending through the wealth creation channel. Contact: Riki Polygenis, (Head of Australian ) +(61 3) National Australia Bank - Group 2

3 NAB Consumer Behaviour Survey - Summary Q1 216 Consumer Anxiety by Key Categories Rural town / bush Under $35k $35k to $5k $5k to $k $k to $k $k+ 3 to to 29 (3-49) (5+) (3-49) (18-29) (18-29) (5+) H/hold size (one) H'hold size (three+) H'hold size (two) leaver Bachelor / Post grad Consumer anxiety was highest in the under-performing economies of &, with much higher stress associated with government policy, cost of living and job security (especially in ). Consumers living in capital cities have replaced those in regional cities for having the highest levels of anxiety. There continues to be a very clear relationship between income and consumer anxiety. Women still report much higher anxiety than men - and for all survey questions. Middle-aged (3-49) consumers continue to report the highest stress by age, particularly in regards to retirement funding and cost of living. Women (3-49) have overtaken women 5+ for having the highest stress (and among the highest of all groups). Men 5+ continue to rate consumer anxiety lowest by age and gender and among the lowest across all groups. Australians report the highest anxiety levels in this group, and are most concerned across all questions (except job security). By household size, one person households report the highest anxiety - and for all survey questions except job security. Consumers with kids have higher levels of anxiety than those without, especially when it comes to cost of living. By educational attainment, consumers with a bachelor / post grad qualification are the least anxious group, possibly due to the link between education and income levels. s report the highest levels of consumer anxiety (least anxious previously), mainly due to heightened concerns over their job security and government policy. Not having a job adds more to consumer anxiety, especially in relation to government policy and cost of living. 5 6 National Australia Bank - Group 3

4 NAB Consumer Behaviour Survey - Summary Q1 216 Consumer Anxiety by Key Categories (change) Rural town / bush Consumer anxiety fell in all states except &, where state economic performance is also lagging. Higher anxiety in both states reflected notably higher concerns over government policy, cost of living and job security (particularly in ). $k to $k $5k to $k $35k to $5k $k+ Under $35k 18 to 29 3 to (3-49) (18-29) (5+) (18-29) (3-49) (5+) H'hold size (three+) H/hold size (one) H'hold size (two) anxiety By income, middle income earners ($5,-$,) were the only groups to rate their anxiety higher in Q1, with government policy (ahead of the May Federal budget), health spending and cost of living the main drivers. anxiety Consumer anxiety among middle-aged women increased in Q1 and is now among the highest of all groups, with higher stress over cost of living and government policy offsetting lower stress relating to their job security. Higher anxiety among households with 3 or more people was driven by heightened concern over their retirement funding and health spending. Bachelor / Post grad leaver s reported the biggest increase in anxiety across all groups, with heightened concern across all survey questions, especially in relation to their job security National Australia Bank - Group 4

5 NAB Consumer Behaviour Survey - Summary Q1 216 Consumer anxiety trends - focus on key areas of concern Overall consumer anxiety is currently sitting below long-term average levels - and in most demographic groups with the exceptions of and Tasmania. In contrast, consumer anxiety has fallen notably below average for widows and men over 5. 7 Consumer Anxiety (score out of where = 'nil' anxiety and = 'extreme' anxiety) 6 Overall Rural Town/Bush Under35k 35k to 5k 5k to k k to k k (18-29) (18-29) (3-49) (3-49) (5+) (5+) H/hold Size (one) H/hold Size (two) H/hold Size (three+) Bachelor/PostGrad DNF Long-Term Average Score Latest Score Despite an improvement in Q1, cost of living remains a key driver of consumer stress for most groups - over 1 in 4 Australian consumers overall still rate their concerns high. Encouragingly, cost of living pressures fell below long-term average levels in most demographic groups in Q It was however apparent that cost of living pressures were still above average for consumers in Tasmania and for young men (18-29). 8 Cost of Living (score out of where = 'nil' anxiety and = 'extreme' anxiety) 7 6 Overall Rural Town/Bush Under35k 35k to 5k 5k to k k to k k (18-29) (18-29) (3-49) (3-49) (5+) (5+) H/hold Size (one) H/hold Size (two) H/hold Size (three+) Bachelor/PostGrad DNF Long-Term Average Score Latest Score With the Federal budget approaching in May, anxiety related to government policy increased in Q1 - almost 27% of Australians rated their level of stress high, with only 1 in 7 rating their anxiety low. However overall stress related to government policy is still below average in most groups. The notable exceptions are for consumers living in, high income earners (over $,), young women (18-29), singles, high school leavers and those with a diploma and sales/clerical workers. Government Policy (score out of where = 'nil' anxiety and = 'extreme' anxiety) 7 6 Overall Rural Town/Bush Under35k 35k to 5k 5k to k k to k k (18-29) (18-29) (3-49) (3-49) (5+) (5+) H/hold Size (one) H/hold Size (two) H/hold Size (three+) Bachelor/PostGrad DNF Long-Term Average Score Latest Score National Australia Bank - Group 5

6 NAB Consumer Behaviour Survey - Summary Q1 216 Changes in consumer spending behaviours by state More consumers in are spending on medical expenses, children and home improvements. But more are also cutting back on savings/super and many non-essentials. consumers spending more on medical expenses and utilities and using more credit. Notably fewer are spending on groceries, savings/ and other non-essentials. : Changes in Spending Behaviour (net balance) : Changes in Spending Behaviour (net balance) Spending behaviours in are being cut across most items, except children & travel. Biggest cutbacks in spending on major household items, personal goods and paying off debt. More consumers in cut back spending across most areas, particularly transport, use of credit and savings/. the notable exception. : Changes in Spending Behaviour (net balance) : Changes in Spending Behaviour (net balance) consumer behaviour reflecting increased emphasis on paying off debt and medical expenses. More consumers also using credit and cutting back on most non-essentials. volatile. Aside from medical expenses, consumer spending behaviours were notably less aggressive in nearly all other spending categories relative to Q3. : Changes in Spending Behaviour (net balance) : Changes in Spending Behaviour (net balance) National Australia Bank - Group 6

7 NAB Consumer Behaviour Survey - Summary Q1 216 Group Alan Oster Group Chief Economist Behavioural & Industry Australian International Jacqui Brand Personal Assistant Dean Pearson Head of Behavioural & Industry +(61 3) Robert De Iure Senior Economist - Behavioural & Industry +(61 3) Brien McDonald Senior Economist - Behavioural & Industry +(61 3) Riki Polygenis Head of Australian +(61 3) James Glenn Senior Economist - Australia +(61 3) Vyanne Lai Economist - Australia +(61 3) Amy Li Economist - Australia +(61 3) Tom Taylor Head of, International Tony Kelly Senior Economist - International +(61 3) Gerard Burg Senior Economist - Asia +(61 3) John Sharma Economist - Sovereign Risk +(61 3) Phin Ziebell Economist - Agribusiness +(61 4) Important Notice This document has been prepared by National Australia Bank Limited ABN AFSL ("NAB"). Any advice contained in this document has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice in this document, NAB recommends that you consider whether the advice is appropriate for your circumstances. NAB recommends that you obtain and consider the relevant Product Disclosure Statement or other disclosure document, before making any decision about a product including whether to acquire or to continue to hold it. Please click here to view our disclaimer and terms of use. National Australia Bank - Group 7