Westpac Leading Index MoM

The Westpac-Melbourne Institute Leading Index of Economic Activity is a monthly composite for Australia. Westpac Banking Corporation and the Melbourne Institute publish it jointly, and it is not official ABS (Australian Bureau of Statistics) data. It combines 8 inputs, including 2 gauges from the Westpac-MI consumer-sentiment survey, into 1 signal of likely momentum versus trend 3 to 9 months ahead. It is not GDP (total output) or a read on current activity, and a negative print alone is not a recession (broad output decline) call.

Each release covers the month just ended and usually appears on a Wednesday in the middle of the next month at 11:00am Sydney time. Sydney keeps AEST in winter and AEDT in summer, and the usual anchor is the third Wednesday, though the date can shift by a week.

Each release brings a free 2-page bulletin with the headline rate, a long-run chart and component contributions in percentage points. It also carries a GDP forecast update and commentary on the RBA (central bank) policy meeting.

The full monthly report is sold by the Melbourne Institute. No formal revision rule is stated, and past reads are restated without comment when source inputs are revised.

The rate is read as deviation from trend. The combined index gives earlier and more reliable turning-point warning than any single component alone.

8 inputs feed the index, grouped into 6 lines below.

• S&P/ASX 200: captures equity-market expectations for activity.
• Yield spread: gap between long- and short-term rates; a wider spread implies markets expect activity to pick up.
• Commodity prices in AUD terms: captures the export-income pulse through the terms of trade.
• Westpac-MI Consumer Expectations and Unemployment Expectations: capture household views on the economy and jobs; both come from the consumer-sentiment survey.
• Dwelling approvals and hours worked: capture the housing pipeline and realised labour input.
• US industrial production: captures the global pulse affecting Australia.

In its bulletin dated October 19, 2022, Westpac reported the September read. The 6-month annualised deviation-from-trend rate fell to -1.15% in September from -0.33% in August and 1.21% in April. That was the weakest since the 2020 pandemic shock, and before that since early 2016.

The total fall of 2.36 percentage points since April was led by yield-spread compression (-0.83 points) after fast RBA rate hikes. Softer AUD commodity prices (-0.79 points) and fading hours worked (-0.52 points) added further drag.

Weak equities (-0.32 points) and soft US output (-0.17 points) weighed further, both consumer-expectations gauges stayed soft, and steady dwelling approvals partly offset. Westpac read it as consistent with GDP growth slowing from 3.4% in 2022 to 1.0% in 2023.

1. Composite level: Combine the 8 inputs into 1 index level. The publisher discloses no weights.
2. Six-month annualised growth: Divide the current level by the level 6 months earlier, then square to annualise. Subtract 1 and multiply by 100, giving g = ((I_t / I_{t-6})^2 - 1) x 100 in percent per year.
3. Deviation from trend: Subtract the estimated long-run trend, about 2% to 3% per year, revised as population and productivity views change. For example, 100.4 divided by 99.0 is 1.01414, which annualises to 2.85%; minus 2.50% trend leaves +0.35%.
4. Forward read: Read the headline as the likely pace versus trend 3 to 9 months ahead. Positive means above-trend momentum and negative means below-trend momentum.