Biggest lift in consumer confidence in 11 weeks

Victorian card spending hits 4-month low
Consumer confidence; CBA card spending & spending intentions; Restaurant reservations

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 2.4 per cent to 88.6 – the biggest increase in 11 weeks (long-run average since 1990 is 112.7). Sentiment is up by 35.7 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

Commonwealth Bank (CBA) card spending: According to CBA, card spending in the week to August 14 was up 3.6 per cent on a year ago, compared to an 8.4 per cent lift for the week ended August 7. Online spending rose 21.2 per cent on a year ago (previous week: +20.8 per cent), but in-store spending was down 4.5 per cent (previous week: +2.9 per cent). Victorian card spending fell by 14.8 per cent on a year ago (previously: -0.8 per cent) and NSW spending growth eased to 5.6 per cent (previous week: +8.7 per cent) in the week ended August 14 compared to a year ago.

CBA Household Spending Intentions (HSI, July): According to the CBA Group economists, “Prior to the imposition of the stage 4 lock‑down in greater Melbourne, the CBA Household Spending Intentions series for July showed solid improvement in the majority of spending categories. Home buying, Retail sales, Travel, Entertainment and Education spending intentions all improved through July. Health and fitness spending intentions continued to decline, while Motor vehicles spending intentions are moving sideways.”

The Kepler index of retail sales reported that aggregate sales rose by 3.3 per cent last week (August 16), but fell 20.2 per cent on the year. Average transaction value rose 4.2 per cent last week to be up 27.7 per cent on a year ago. Passer-by traffic fell 3.9 per cent last week to be down 53.8 per cent on the year.

Restaurant dining down: Australian restaurant reservations were down 18.6 per cent on August 15 from a year earlier, according to OpenTable. Sit down diners fell by 99.6 per cent in Victoria, but were up by 59 per cent in Queensland and 19.7 per cent in NSW.

The consumer confidence and credit card spending figures have implications for retailers, and other consumer-focussed businesses.

What does it all mean?

• The coronavirus crisis continues with Victoria’s death toll tragically mounting. But it appears that lockdown measures are starting to ‘bend the curve’ with new case numbers easing. And virus cases remain relatively contained elsewhere, despite flare ups in Sydney.

• The improving mood of consumers was likely bolstered by a better-than-expected July employment report on Thursday, where a surprise 114,700 jobs were added or reinstated during the month. While still negative, consumer views on ‘current economic conditions’ jumped by 10.6 per cent last week – possibly supported by the lift in sentiment of Melbourne consumers – hoping that they are past the worst of lockdown 2.0.

• But the damage to the Victorian economy is evident in the CBA’s weekly card spending data. Victorian card spending fell by 14.8 per cent (previously: -0.8 per cent) in the week to August 14 when compared with a year ago – the biggest fall in four months. Spending by Victorians on personal care (-58.8 per cent), transport (-51.9 per cent), clothing & footwear (-46.7 per cent) all fell sharply last week from a year ago. And Victorian restaurant reservations fell by 99.6 per cent on August 15 from a year earlier, according to OpenTable.

What do the reports and figures show?

Consumer sentiment – Week ended August 16

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 2.4 per cent to 88.6 – the biggest increase in 11 weeks (long-run average since 1990 is 112.7). Sentiment is up by 35.7 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

• Four of the five major components of the index rose last week:

The Commonwealth Bank (CBA) credit card data – Week ended August 14

• According to the Commonwealth Bank (CBA), card spending in the week to August 14 was up 3.6 per cent on a year ago, compared to an 8.4 per cent lift for the week ended August 7. Online spending rose 21.2 per cent (previous week: +20.8 per cent), but in-store spending was down 4.5 per cent (previous week: +2.9 per cent). Victorian card spending fell by 14.8 per cent (previously: -0.8 per cent) and NSW spending eased to 5.6 per cent (previous week: +8.7 per cent) in the week ended August 14 compared to a year ago.

• CBA noted: “Spending on goods remains strong but Victoria and NSW are weighing on spending here. Services spending is still down over the year. We don’t expect services spending to make a full recovery until all restrictions have been lifted.

• In Victoria stage 4 restrictions were imposed on 2 August. Over the week ending 14 August Victoria spending was down by 15 per cent compared to a year ago. NSW spending growth has also trended lower.

• Tasmania and Western Australia have consistently shown strong spending relative to other states over recent weeks. The volatility in Queensland and the ACT spending is explained by a spike in education spending. Changes to university semester fee deadlines means the annual rates of growth in education spending have been volatile.

• In most states medical care and health spending has held up well despite outbreaks of coronavirus cases. But in Vic the escalation of shutdown measures have immediately weighed on medical care and health spending.

• In the ACT and Queensland education spending has spiked due to a deferral of university semester two fee deadlines relative to last year. The spike in education payments has contributed to the surge in online spending in these states relative to last year.

• Spending on household furnishings and equipment has been very strong across the major States throughout the pandemic as households spend more time in their dwellings and doing DIY projects. But the shutdowns imposed on 2 August are now weighing on furnishing spending in Victoria.

• Annual growth in in‑store spending in Victoria over the week ending 14 August is now 5 per cent lower than its previous trough in April. The household furnishings and general retail categories have contributed to in‑store spending reaching new lows in Victoria.”

The Commonwealth Bank (CBA) Household Spending Intentions Series (HSI): July

• According to the CBA, “Prior to the imposition of the stage 4 lock‑down in greater Melbourne, the CBA Household Spending Intentions series for July showed solid improvement in the majority of spending categories. Home buying, Retail sales, Travel, Entertainment and Education spending intentions all improved through July. Health and fitness spending intentions continued to decline, while Motor vehicles spending intentions are moving sideways.”

• On home buying intentions: “Home buying spending intentions improved further in July – and were almost back to the highs seen in late 2019. A combination of both an increase in home loan applications and Google searches were responsible for the gains.”

• On retail spending intentions: “Retail spending intentions continued to rise in July. The improvement was driven by increased spending on food, general retail (including department & discount stores) and household furniture and equipment.”

• On travel spending intentions: “Travel spending intentions continued to bounce off the very low base set in April, with improvement in spending more than offsetting a decline in Google searches.”

• On health & fitness spending intentions: “Health & fitness spending intentions declined further in July, with the largest source of weakness for commercial and professional sports clubs and sports promotors.”

• On entertainment spending: “Entertainment spending intentions continued to recover lost ground in July. Increases in spending were seen across a number of categories, including fast food, digital entertainment and music stores.”

• On education spending intentions: “Education spending intentions improved noticeably in July, with gains especially in correspondence schools and trade & vocational education providers. Term 3 school fee payments could also be a factor here.”

• On motor vehicle purchase intentions: “Motor vehicle buying intentions have been tracking largely sideways in recent months and this continued into July. Google searches for motor vehicles were down marginally in July, while actual spending was up marginally on the month.”

Kepler index of retail sales activity – Week ended August 16

• The Kepler index of retail sales activity reported that aggregate sales rose by 3.3 per cent last week (August 16), but fell 20.2 per cent on the year. Average transaction value rose 4.2 per cent last week to be up 27.7 per cent on a year ago. Passer-by traffic fell 3.9 per cent last week to be down 53.8 per cent on the year.

OpenTable restaurant reservations – Week ended August 15

• Australian restaurant reservations were down 18.6 per cent on August 15 from a year earlier, according to OpenTable. Sit down diners fell by 99.6 per cent in Victoria, but were up by 59 per cent in Queensland and 19.7 per cent in NSW.

What is the importance of the economic data?

• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

• The weekly Commonwealth Bank (CBA) credit & debit card spend data is derived from transaction authorisations to give a near real-time view. This means that cancelled authorisations, refunds, reversals, etc. will not be included. Data has not been adjusted for effects of consumers substituting between cash and card payments. CBA merchant facility spend data is derived from the Merchant Acquiring System which includes net sales from both CBA and Other Financial Institution (OFI) domestic and international cards.

• The focus of the Commonwealth Bank (CBA) Household Spending Intentions Series (HSI) is on Australian households and their spending intentions. The approach is to employ the near real-time spending readings from CBA’s household transactions data, combine them with relevant search information from Google Trends data and map the results to the official data on consumer spending.

• Kepler Analytics have “sensors in over 3500 locations globally, collecting traffic and other consumer behaviour data anonymously.” Kepler notes “Our clients provide us with their daily sales targets, actual POS sales and other specific data points on which they measure and manage their businesses. By aggregating and anonymising this information, we can provide unique insights into the Retail Industry as a whole.”

• OpenTable tracks more than 54,000 restaurants on its reservation site. The data captures online and phone reservations as well as walk-ins. Take-out and deliveries are excluded. Only states or cities with 50+ restaurants in the sample are included.

What are the implications for investors?

• The tentative improvement in consumer confidence is great news. The question now is whether we’ll see a stabilisation of the weekly ANZ-Roy Morgan index in the coming weeks. Of course, much depends on our continuing battle to contain and supress the virus, enabling businesses to re-open and workers to get back to work.

• Last week’s CBA card spending data was less encouraging with caution particularly evident in NSW with virus outbreaks causing Sydneysiders to self-regulate. But CBA Group economists are forecasting a 1.5 per cent lift in retail spending in July. The preliminary data is issued on Friday with Victorian stockpiling of food and alcohol during stage 3 of lockdowns in Melbourne and Mitchell Shire expected to cause a decent lift in spending. This view is backed up by the CBA’s Household Spending Intentions survey, which showed retail spending intentions lifting, driven by increased spending on food, household furniture & equipment and goods sold at department and discount stores.

Published by Ryan Felsman, Senior Economist, CommSec