Boston, MA -- (SBWIRE) -- 11/13/2012 -- We continue to expect households to cut back and increase saving, and maintain our 2012 forecast for consumption growth to come in at 1.8%, far below the economy's long term average of 3.3%. As declining house prices increase the pressure on households to cut back on their expenditures, company profits are likely to see similar declines. In turn, we expect the headline unemployment rate to soar, erasing the recent slight improvements in the unemployment rate recorded in Q112. Moreover, the recent declines in overall labour participation and the number of full-time employed staff suggest that the recent gains in the headline number could easily reverse.

As economic activity in manufacturing and services industries continue to decline, employers will inevitably resort to an absolute reduction of their workforce, rather than converting to part-time staff, in an effort to control costs. We believe the service sector will likely be the worst hit. Furthermore, with more public sector job cuts on the way, we maintain our expectations for the unemployment rate to increase to at least 6.4% by the end of 2012 and expect consumption growth to remain below average over the medium term.

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Headline Industry Data

- 2012 per capita food consumption = +0.8%; forecast to 2016 = +6.0%.
- 2012 soft drinks sales = +2.5%; forecast to 2016 = +12.6%.
- 2012 alcoholic drinks sales = +1.5%; forecast to 2016 = +10.7%.
- 2012 mass grocery retail sales = +3.3%; forecast to 2016 = +20.9%.

Key Industry Trends

Waning Appetite For The Big Mac: Australians' appetite for out-of-home consumption and fast food in particular appears to be waning against the backdrop of domestic demand weakness. US fast-food giant McDonald's announced that its sales growth in Australia has slowed and it is expecting challenging operating conditions in the coming months. Certainly, with consumer deleveraging continuing apace, prolonged weakness in the housing market and labour market conditions remaining subdued, the Australian market is likely to prove difficult for McDonald's in 2012.

SABMiller Volumes Down in Australia: In July 2012, UK-based drinks firm SABMiller's results indicated that it is still struggling to turn around the Foster's business it acquired in December 2011 for AUD9.9bn. The firm reported that the 'the Australian lager industry continued to be affected by the loss of market share to other alcoholic beverages together with subdued consumer sentiment leading to a significant reduction in volumes.' With the overall market proving challenging, there are questions to be asked about SABMiller's decision to enter Australia despite the firm's insistence that it is making good progress with 'synergy delivery' and plans to strengthen 'brand equities and retail engagement. '
Risks To Outlook

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