Confidence at 4-week highs. Economy lifts again.

Consumer confidence; CBA card spending data; Balance of Payments

What happened? The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.2 per cent to a 4-week high of 101.8 (long-run average since 1990 is 112.4).

Other data: Commonwealth Bank (CBA) Group economists reported that national household credit and debit card spending for the week ended August 27, 2021 “is tracking 5 per cent higher than the corresponding week in 2019, down from the 8 per cent pace the previous week.”

The current account surplus hit a record high of $20.5 billion in the June quarter, 3.9 per cent of GDP. The export sector (exports and imports) will shave 1 percentage point (pp) off economic growth (GDP) in the June quarter. The public sector will add 0.7pp. The economy is tipped to have grown 0.3 per cent in the quarter.

Implications: Aussies are looking forward, not backwards. The higher take-up rates of the Covid vaccines are providing hope that better times are ahead. Australia potentially could be back in recession, but that means economic stimulus will remain in place for longer. And the expectation is that Australia will motor out as it did a year ago.

The consumer confidence and CBA household spending and credit card data have implications for retailers, and other consumer-focussed businesses. The balance of payments data has implications for trade-exposed businesses and companies vulnerable to changes in the Aussie dollar.

What does it mean?

• The answers to all economic questions remains Covid-19 – but sometimes the answers don’t make perfect sense. Despite all that is happening, confidence edged up 0.2 per cent last week with Sydney actually up 0.9 per cent. But sentiment fell in Brisbane (-1.6 per cent), Melbourne (-1.9 per cent), Adelaide (-8.6 per cent) and Perth (-0.8 per cent).

• The spread of the Delta virus strain, lockdowns and take-up of vaccines are all fundamentally affecting spending and confidence levels. The good news is that confidence and spending are holding up far better than occurred in the lockdowns of 2020. Economic support and stimulus measures, super-low interest rates all support economic activity. The fast take-up rates of vaccines is providing the hope for an easing of mobility restrictions in coming months.

• Commonwealth Bank (CBA) Group economists expect that Australia will stay out of recession. In the June quarter the economy is tipped to have lifted 0.3 per cent (data released tomorrow). The economy all but certainly will contract in the current September quarter. We remain positive that the economy will rebound in the December quarter.

What do you need to know?

Consumer sentiment – Week ended August 29

The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.2 per cent to 101.8 (long-run average since 1990 is 112.4). Three out of five major sub-components rose last week.

CBA weekly household card spending – Week ended August 27

• CBA Group economists reported: “There was a slight tick down in the pace of spending growth for the week ending August 27, according to CBA’s high frequency card spending data. National spending is tracking 5 per cent higher than the corresponding week in 2019, down from the 8 per cent pace the previous week. The pace of card spending growth remains significantly down from the 20 per cent pace in May prior to the Victoria lockdown. Sixty per cent of Australians were under lockdown in the week, up by more than 5 per centage points from the previous week due to regional Victoria joining NSW, Melbourne and the ACT in lockdown.”

• “The past week also saw a softening in the pace of card spending in Tasmania, South Australia and Queensland. Card spending in Western Australia continues to outperform and lifted over the past week. “

• “Online spending continued to remain robust while in store spending remained well below 2019 levels. By spending category, spending on household furnishings & equipment continues to outperform but softened in the past week with the closure of more stores as restrictions were tightened in certain locations.”

Balance of Payments – June quarter

• The current account surplus rose by $1.5 billion to a record $20.5 billion in the quarter.

• Exports of goods and services fell by 3.2 per cent in real terms in the quarter (goods down 3.6 per cent) with imports up 1.5 per cent (goods up 1.8 per cent). Net exports are expected to detract 1.0 percentage points from GDP in the June quarter.

• The terms of trade on goods and services for the June quarter rose by 7.0 per cent to a record 123.3, with an increase of 9.3 per cent in export prices out-pacing an increase of 2.2 per cent in import prices.

• Australia’s net foreign debt rose by $22.6 billion to $1,186.4 billion.

• The debt servicing ratio (net income on foreign debt, ratio to goods and services) was steady at a 41-year low of 3.0 per cent in the June quarter.

Government Finances – June quarter

• Overall, public sector demand will add 0.7 percentage points to GDP in the June quarter.

• General government final consumption expenditure rose by 1.3 cent in the quarter and will add 0.3 percentage points to GDP in the June quarter.

• Total public sector gross fixed capital formation increased by 7.4 per cent in the quarter and is expected to contribute 0.4 percentage points to the change in GDP in the June quarter.

Published by Craig James, Chief Economist, CommSec