Consumer confidence hit 20-week high

Lower JobKeeper payments hit payrolls & wages
Consumer confidence; RBA Board minutes & speech; Payrolls & wages, CBA household spending

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.4 per cent to a 20-week high of 98.1 (long-run average since 1990 is 112.6). Confidence has lifted in nine of the past ten weeks. Sentiment is up by 50.2 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

Reserve Bank Board meeting minutes: At the October 6 monetary policy meeting Reserve Bank Board members, “discussed how much traction further monetary easing might obtain in terms of better economic outcomes.” They also noted: “as the economy opens up, members considered it reasonable to expect that further monetary easing would gain more traction than had been the case earlier.”

Reserve Bank official speech: Reserve Bank Assistant Governor (Financial Markets) Christopher Kent delivered a speech, “The Stance of Monetary Policy in a World of Numerous Tools.” Dr Kent said, “The task of assessing the stance of monetary policy is very different and more complex than it used to be.”

Survey of payrolls & wages: The Bureau of Statistics (ABS) reported that between September 19 and October 3, national payroll jobs fell by 0.9 per cent and wages fell by 2.2 per cent.

Commonwealth Bank (CBA) Household Spending Intentions (September): According to CBA economists, “Both Home Buying and Motor Vehicle spending intentions softened a little during September. Spending intentions for Retail, Travel, Health & Fitness, Entertainment and Education tracked sideways.”

The consumer confidence and spending intentions figures have implications for retailers, and other consumer-focussed businesses. The Reserve Bank Board minutes are important in gauging policy settings. The payroll and wage data helps government with decisions on assistance measures for households and businesses.

What does it all mean?

• Consumer confidence hit 20-week highs of 98.1 points last week – tantalisingly close to pre-pandemic levels near 100 points (the level that separates optimists from pessimists). ANZ economists noted that a “Further easing of COVID-19 induced restrictions should support the index over this week as it seeks to move back to its pre-pandemic level.”

• Retail spending intentions may have tracked sideways in September according to CBA Group economists, but the ANZ-Roy Morgan consumer sentiment gauge has signalled an improvement in intentions to spend in October. In fact, consumer views on whether it’s a ‘good time to buy a household item’ rose by 5.8 per cent to a 17-week high of 4.6 points last week.

• Reserve Bank policymakers have invited traders to put downward pressure on short-term interest rates this morning. The Reserve Bank’s Christopher Kent said that it would not be unexpected for the Aussie Bank Bill Swap Rate (BBSW) to “pop below zero” with “room to compress short-term rates.” But does this mean that the Reserve Bank Board will follow suit with policy action after guiding bank bills lower?

• Well the Reserve Bank’s October 6 Board minutes – released today – confirmed that policymakers are actively assessing how best to implement monetary policy tools to support the economic recovery. In fact, the minutes expressed a clear easing bias: “as the economy opens up, members considered it reasonable to expect that further monetary easing would gain more traction than had been the case earlier.” And, “the Board views addressing the high rate of unemployment as an important national priority.”

• If the Bureau of Statistics’ weekly payroll jobs and wages report is any guide, it appears that lower JobKeeper wage subsidy and JobSeeker unemployment payments (effective September 28) could be behind the 0.7 per cent fall in national payrolls and 1.4 per cent decline in national wages between September 26 and October 3. In fact, payrolls fell across all states and territories in the week, led by declines of 1 per cent in the Northern Territory and 0.9 per cent in Victoria. And wages tumbled 3 per cent in NSW and 2 per cent in Tasmania.

What do the figures show?

Consumer sentiment – Week ended October 18

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.4 per cent to a 20-week high of 98.1 (long-run average since 1990 is 112.6). Confidence has lifted in nine of the past ten weeks. Sentiment is up by 50.2 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

• Consumer views on whether it’s a ‘good time to buy a household item’ rose by 5.8 per cent to a 17-week high of 4.6 points last week.

• ANZ notes: “Among the major cities, Melbourne [sentiment] weakened while confidence in Brisbane and Sydney surged. Further easing of COVID-19 induced restrictions should support the index over this week as it seeks to move back to its pre-pandemic level.”

Minutes of the Reserve Bank Board meeting held on October 6

• Last paragraph: “The Board affirmed its commitment to supporting jobs, incomes and businesses in Australia. Its actions, including the decision in September to expand the Term Funding Facility, were keeping funding costs low and assisting with the supply of credit. It agreed to maintain highly accommodative policy settings as long as required and to continue to consider how additional monetary easing could support jobs as the economy opens up further.”

• The Decision: “The Board reaffirmed the existing policy settings, namely:

a target for the cash rate of 0.25 per cent

a target of 0.25 per cent for the yield on 3-year Australian Government bonds

the expanded Term Funding Facility to support credit to businesses, particularly small and medium-sized businesses

an interest rate of 10 basis points on Exchange Settlement balances held by financial institutions at the Bank.”

• Assessment of further policy easing: “Members also discussed how much traction further monetary easing might obtain in terms of better economic outcomes. They recognised that some parts of the transmission of easier monetary policy had been impaired as a result of the restrictions on activity in parts of the economy. However, as the economy opens up, members considered it reasonable to expect that further monetary easing would gain more traction than had been the case earlier. Members also considered the effect of lower interest rates on community confidence and on those people who rely on interest income. A further easing would help to reduce financial stability risks by strengthening the economy and private sector balance sheets, thereby lowering the number of non-performing loans.”

• On employment: “Members indicated that they would also like to see more than just progress towards full employment before considering an increase in the cash rate.”

• On balance sheet expansion and Quantitative Easing: “In considering the case for further monetary measures, members discussed monetary policy developments abroad and their implications for financial conditions in Australia, through the yield curve and the exchange rate. Members noted that the larger balance sheet expansions by other central banks relative to the Reserve Bank was contributing to lower sovereign yields in most other advanced economies than in Australia. Members discussed the implications of this for the Australian dollar exchange rate.”

Reserve Bank official speech to the IFR Australia DCM roundtable webinar, October 20

• Reserve Bank Assistant Governor (Financial Markets) Christopher Kent delivered a speech, “The Stance of Monetary Policy in a World of Numerous Tools.” The speech can be found here with key quotes from Dr.
• “The Bank is using a number of monetary policy tools as part of the package of measures adopted to support the economy through the pandemic. This means that the task of assessing the stance of monetary policy is very different and more complex than it used to be. In particular, forward guidance and the three-year yield target have supported historically low borrowing rates at this maturity. Other elements of the package affect interest rates indirectly, and are harder to assess. But, the extent of stimulus from these sources can be gauged in the first instance by considering their effect on the RBA balance sheet, hence my use of the term ‘balance sheet’ tools.”

• “The purchases of government bonds and the take-up of the Term Funding Facility contributed to a further significant rise in liquidity in the banking system. As expected, the actual cash rate – which is the rate banks charge to lend out funds to other banks overnight – declined below the cash rate target (Graph 1 [above]). It settled at around 13 basis points, which is just above the 10 basis points that banks receive on surplus Exchange Settlement (ES) balances in their accounts at the Reserve Bank. The decline in the cash rate to be below the target was a natural consequence of the expansion of the Reserve Bank’s balance sheet.”

Weekly payroll and wages – October 3

• According to the Australian Bureau of Statistics (ABS), in the period from September 19 to October 3, Australian payroll jobs fell by 0.9 per cent. National wages decreased by 2.2 per cent.

• Payrolls across state and territories from September 19 to October 3: NSW (-0.8 per cent); Victoria (-0.9 per cent); Queensland (-1 per cent); South Australia (-0.7 per cent); Western Australia (-1 per cent); Tasmania (-1 per cent); Northern Territory (-1.2 per cent); and ACT (-0.9 per cent).

• Between the week ending 19 September and the week ending 3 October 2020 the largest changes across industry were:

Payroll jobs: Electricity, gas, water and waste services decreased by 3.7 per cent and Agriculture, forestry and fishing fell by 2.3 per cent.

Total wages: Financial and insurance services decreased by 22.8 per cent and Information media and telecommunications fell by 16.5 per cent.

• Between the week ending March, 14, 2020 (the week Australia recorded its 100th confirmed COVID-19 case) and the week ending October 3, 2020:

Payroll jobs decreased by 4.1 per cent.

Total wages paid decreased by 3.3 per cent.

• Since the week ending 14 March 2020 the largest changes across industry were:

Payroll jobs: Accommodation and food services decreased by 17.4 per cent and Arts and recreation services fell by 12.9 per cent.

Total wages: Accommodation and food services decreased by 13 per cent and Wholesale trade decreased by 9.6 per cent.

Payroll jobs: Those worked by people aged 70 and over decreased by 12.1 per cent and those worked by people aged 60-69 fell by 6.4 per cent. Payrolls for people aged under 20 rose 6.1 per cent.

Total wages: Payments to people aged 40-49 decreased by 3.2 per cent and payments to people aged 70 and over decreased by 2.5 per cent. Wages for those people aged under 20 rose by 29.6 per cent.

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

• According to the CBA, “The Commonwealth Bank Household Spending Intentions series showed that spending largely tracked sideways in September – as the impacts of the Victoria stage 4 shutdowns remain evident. Both Home Buying and Motor Vehicle spending intentions softened a little during September. Spending intentions for Retail, Travel, Health & Fitness, Entertainment and Education tracked sideways.”

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 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.

• The Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.

• The ABS data Weekly payroll jobs and wages “provides indicative information on the economic impact of the COVID-19 coronavirus on employees, including changes in employee jobs, changes in total wages, and changes in average weekly wages per job.”

What are the implications for investors?

• The scene is set for an easing of monetary policy. The deterioration in the labour market in late September and early October will be a concern to policymakers. But they have much on their plate. While fiscal policy remains supportive, the resurgence in virus numbers in the Northern Hemisphere – and associated lockdowns – could weigh on global growth, denting demand from key export markets.

• The presidential election and fiscal impasse in the US are adding to uncertainty with the US Federal Reserve Vice-Chair Richard Clarida overnight confirming that, “additional support from monetary – and likely fiscal – policy will be needed.” Of course, this will have implications for Reserve Bank decision making in its Melbourne Cup Day deliberations, given the impact of overseas stimulus on its yield curve control strategy and the Aussie dollar.

• In the Board minutes, Reserve Bank policymakers, “considered the effect of lower interest rates on community confidence and on those people who rely on interest income.” While lower borrowing costs support Aussie households and businesses, cutting rates to near zero could affect confidence and the incomes of self-funded retirees.

• But CBA Group economists still expect the Reserve Bank to lower the cash rate target, term funding facility rate and three-year bond yield target to 0.10 per cent on November 3.

• The preliminary retail trade data for September is released tomorrow. Based on Commonwealth Bank Household Spending Intentions and weekly card spending data, CBA Group economists are forecasting a 2.5 per cent decline in retail spending in the month.

Published by Ryan Felsman, Senior Economist, CommSec