Confidence slumps. Used car prices still rising.

Consumer confidence; CBA credit card data

What happened? Used vehicle prices rose by 27.4 per cent in the year to July, down from 34.2 per cent in the year to June. The weekly ANZ-Roy Morgan consumer confidence rating fell by 3.1 per cent to a 9½-month low of 98.6 (long-run average since 1990 is 112.5).

Other data: CBA report that national credit and debit card spending lifted modestly in the past week, supported by a bounce in Victorian spending.

Implications: Covid-19 continues to drive the fortunes of retail businesses. Government payments are serving to support consumer confidence and spending. The autos sector of the sharemarket remains strong, reflecting high demand and higher prices for new and used cars.

The consumer confidence data has implications for retailers, and other consumer-focussed businesses. Used vehicle price data provides a guide to supply and demand for companies in the auto and components sector.

What does it mean?

• The answer to all economic questions continues to be Covid-19. The extended lockdown continues in Greater Sydney and snap lockdowns continue to be applied in Victoria, Queensland and regional NSW. The fall in consumer confidence is not surprising. Probably what is surprising, though, is that readings on the economic outlook improved last week.

• In these Covid times, punctuated by lockdowns, consumers are wary about buying a major household item like a fridge, TV or car. Having said this, SUV sales stood at record highs for the 12 months to July. And both used and new car prices are rising as demand outstrips supply. So consumers are wary but they are not completedly dispondent.

• The sharemarket continues to hold at, or near, record highs, encouraged by relative success (compared globally) in supressing the highly contagious delta variant of Covid-19 and the rising take-up rates of vaccinations. The approval of the Moderna vaccine is even more positive news on the recovery front.

• The Reserve Bank holds the belief that economic recovery will be brisk when lockdowns end or become briefer (‘hard and fast’). That confidence was born out by CBA data showing a solid bounce in Victorian spending when it emerged from lockdown in the past week.

• Car prices are supported by low local and global supply and high demand. The stock of cars in dealerships has fallen amid continuing supply chain difficulties experienced by major global automakers. Not only are rising cases of the delta variant making it hard for car makers to lift output, there are continued delays in sourcing key components like computer chips. Locally, vehicle demand is supported by the federal government’s instant asset write off scheme, record low interest rates and demand for cars in preference to public transport.

What do you need to know?

Consumer sentiment – Week ended August 8

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 3.1 per cent to 98.6 (long-run average since 1990 is 112.5). Three out of five major sub-components fell last week:

CBA weekly household card spending – Week ended August 6

• CBA reported: “CBA household card spending for the week ending 6 August 2021 lifted a little. Card spending bounced solidly in Victoria with the state out of lockdown for most of the week. A new lockdown in Victoria began at 8pm on 5 August so spending will contract again. Lockdowns in NSW and QLD kept spending depressed in the week. Not surprisingly, spending remains weakest in services. Spending on clothing and footwear is also very soft. Spending is generally weakest in metropolitan areas as that is where the bulk of the lockdowns have been focused. However there are now more lockdowns occurring in regional areas, including Armidale and Cairns at the moment, which will weigh on regional spending.”

Datium Insights-Moody’s Analytics Used Vehicle Price Index

• Moody’s Analytics reported: “Australian used-vehicle price appreciation decelerated in July. The Datium Insights-Moody’s Analytics Used Vehicle Price Index increased by 27.4 per cent on a year-earlier basis in July, compared with 34.2 per cent in the month prior. Car prices rose by 28.3 per cent while truck prices increased by 21 per cent. Vehicle retention value, measured as price/manufacturer suggested retail price, rose by 23.4 per cent compared with a year earlier, with the car component increasing by 25.8 per cent and the truck component rising by 19.9 per cent.”

Published by Craig James, Chief Economist, CommSec