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Aussies tested again
Consumer confidence; CBA credit/debit card lending

East Coast floods: The Insurance Council of Australia has “declared a Catastrophe for large parts of NSW following the devastating storms and flooding of the last few days.”

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.5 per cent to 110.4 (long-run average since 1990 is 112.6). But confidence is still up by 69.1 per cent since hitting record lows of 65.3 on March 29, 2020 (lowest since 1973).

Credit & debit card spending: The Commonwealth Bank (CBA) measure of household card spending in the week to March 19 was up by 19 per cent on 2019. CBA is now using 2019 as the base of comparison, rather than 2020, noting it was a more “normal” year for spending.

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

What does it all mean?

• Consumer sentiment, as measured by Roy Morgan and ANZ, eased 0.5 per cent last week, the second fall in the past four months. Positive news on the job market was balanced against the evolving NSW flood situation. Consumer confidence has been broadly stabilising over the past three months. But the worsening East Coast floods will likely weigh on consumer minds over the next few weeks.

The ‘Catastrophe’ declaration has a range of practical implications such as giving affected policyholders priority access to insurers. The Insurance Council has not placed an early figure on the damage bill of the major rain event (storms and floods). Our thoughts are with all those that have been severely impacted by the storms and floods.

• According to the latest Commonwealth Bank data, consumer spending remains solidly up on ‘normal’ (that is, compared with 2019). Employment continues to lift and this would be having a positive influence on job security.

What do you need to know?

Consumer sentiment – Week ended March 21

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.5 per cent to 110.4 (long-run average since 1990 is 112.6). But confidence is still up by 69.1 per cent since hitting record lows of 65.3 on March 29, 2020 (lowest since 1973).

• Sentiment in Sydney in the past week was down by 2.6 per cent (NSW -1.7 per cent) with sentiment levels in Brisbane down 5.9 per cent.

The Commonwealth Bank (CBA) credit and debit card data – Week ended March 19

• The Commonwealth Bank (CBA) measure of household card spending in the week to March 19 was up by 19 per cent on 2019. CBA is now using 2019 as the base of comparison, rather than 2020, noting it was a more “normal” year for spending. The smoothed annual growth rate for spending has held between 14-20 per cent since January 10 this year.

• Strongest growth across the categories was food services (up 45 per cent); followed by alcohol services – spending at bars pubs and clubs – (up 37 per cent). But spending on education was only up 1 per cent with spending on fuel up 2 per cent.

• Across states/territories, the change in spending in 2021 compared with 2019 was: NSW (up 18 per cent); Victoria (up 16 per cent); Queensland (up 23 per cent); South Australia (up 20 per cent); Western Australia (up 24 per cent); Tasmania (up 30 per cent); NT (up 20 per cent); and ACT (up 12 per cent).

• CBA notes: “Spending has room to trend a little higher on 2019 levels as tourism-related spending fully recovers. It is an encouraging sign for the labour market to see services spending moving higher. The drawdown of accrued savings and high consumer confidence should support discretionary goods and services spending absent further lockdowns.”

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.

What are the implications for investors?

• Aussies are fighters. Whether it be floods, bushfires, drought, cyclones (or even Covid-19), the nation responds. Communities, businesses and all levels of governments will respond to support those that have been affected by this major rain event. Governments have shown what is possible in supporting the vulnerable through Covid-19 and the same quick and substantial support is needed again.

• It will take some time for the waters to recede and reveal the extent of flood and storm damage and therefore the implications for insurers. Substantial labour, materials and other resources will be required for clean ups, repair and rebuilding.

Published by Craig James, Chief Economist, CommSec