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Consumer confidence hits 13-month high
Consumer confidence; CBA household card spending & spending intentions

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.7 per cent to a 13-month high of 111.2 (long-run average since 1990 is 112.6). Sentiment has lifted in 14 of the past 15 weeks and is up by 70.3 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

Commonwealth Bank (CBA) credit & debit card spending: According to the Commonwealth Bank (CBA), card spending in the week to December 11 lifted by 12 per cent on a year ago (previously: +13 per cent). Spending on services rose 4 per cent from a year ago (previously: +4 per cent). And the annual growth rate of goods spending climbed 19 per cent (previously: +21 per cent). Annual growth in spending in-store hit 8½-month highs of 10 per cent with the online spending at 20 per cent (previously: +23 per cent).

Commonwealth Bank (CBA) Household Spending Intentions (November): According to CBA economists, “The Household Spending Intentions (HSI) series for November showed solid improvement for both Home Buying and Retail spending intentions. Both Entertainment and Motor vehicle spending intentions were a little higher in November. Travel spending intentions were flat on the month, while in contrast, Health & fitness and Education spending intentions both declined in November.”

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

What does it all mean?

• Aussie consumers are the most optimistic in 13 months as Covid-19 vaccines are rolled out in both the US and UK. Last week the ANZ-Roy Morgan Consumer Confidence index rose by 1.7 per cent to 111.2 points – the highest level since November 3, 2019. Four out of the five major sub-indexes rose last week with gains strongest for consumer views on ‘current financial conditions’ (+6.4 per cent to 9-month highs) and ‘current economic conditions’ (+2.9 per cent to 16-month highs) and ‘future financial conditions’ (+0.5 per cent to 10-month highs).

• Commonwealth Bank (CBA) credit and debit card spending climbed by 12 per cent over the week to December 11, 2020 from a year ago. But while spending broadly tracked sideways from the previous week, CBA Group economists reported that, “momentum appears to have pulled back a little since the Black Friday and Cyber Monday sales took place.”

• That said, the improving economic outlook, better job security, high savings rate, government stimulus, pent-up demand and international border closures are expected to boost spending over the Christmas-New Year period. In fact, consumer views on whether it is a good ‘time to buy a household item’ lifted 0.3 per cent last week to 18 points – the highest level since February 23, 2020, according to ANZ economists.

• The CBA’s card spending and Household Spending Intentions (HSI) reports highlighted some encouraging trends as the economy recovers from the pandemic. In fact, CBA Group economists reported, “retail spending intentions rose in November, with the reopening of the Victorian economy helping drive ongoing recovery in consumer spending.” And consumers appear to be more comfortable going to shopping malls, despite lingering health concerns. Last week, annual growth in card spending in-store hit 8½-month highs of 10 per cent. And spending on services rose by 4 per cent from a year ago as government Covid-19 restrictions were eased.

What do the figures show?

Consumer sentiment – Week ended December 13

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.7 per cent to a 13-month high of 111.2 (long-run average since 1990 is 112.6). Sentiment has lifted in 14 of the past 15 weeks and is up by 70.3 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

The Commonwealth Bank (CBA) credit and debit card data – Week ended December 11

• According to the Commonwealth Bank (CBA), card spending in the week to December 11 lifted by 12 per cent on a year ago (previously: +13 per cent). Spending on services rose 4 per cent from a year ago (previously: +4 per cent). And the annual growth rate of goods spending climbed 19 per cent (previously: +21 per cent). Annual growth in spending in-store hit 8½-month highs of 10 per cent with online spending at 20 per cent (previously: +23 per cent).

• Over the week, the strongest annual card spending growth rate was in Tasmania (+18 per cent), followed by Queensland (+16 per cent), South Australia (+15 per cent), Western Australia (+14 per cent), NSW (+12 per cent), the Northern Territory and Victoria (both +11 per cent) and the ACT (+7 per cent).

• CBA Group economists said, “The composition of total spending has changed. Over the 4 weeks to 11 December 20 goods momentum has fallen 3 percentage points while services spending momentum has accelerated by 4½ percentage points. The lift in services spend bodes well for the labour market. But momentum appears to have pulled back a little since the Black Friday and Cyber Monday sales took place. South Australia’s economy locked in gains from the prior week after a rapid bounce back following the easing in restrictions.”

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

• According to CBA Group economists, “The Household Spending Intentions (HSI) series for November showed solid improvement for both Home Buying and Retail spending intentions. Lower interest rates following the November RBA monetary policy easing and the reopening of large parts of the economy supported spending intentions in the month. Both Entertainment and Motor vehicle spending intentions were a little higher in November. Travel spending intentions were flat on the month, while in contrast, Health & fitness and Education spending intentions both declined in November.”

• By component, the CBA reported:

“Home buying spending intentions jumped higher in November, with an increase in home loan applications on the back of the recovery in the economy and very low interest rates from the Reserve Bank rate cuts.

Retail spending intentions rose in November, with the reopening of the Victorian economy helping drive an ongoing recovery in consumer spending – as evidenced by the CBA credit/debit card spending data.

Travel spending intentions tracked largely sideways in November, with some hints of improvement as state borders reopen.

Health and fitness spending intentions declined in November, led lower by Google searches. Actual spending activity was up on the month.

Entertainment spending intentions were marginally stronger.

Education spending intentions declined further in November.

Motor vehicle spending intentions improved in November.”

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.

What are the implications for investors?

• Aussie consumers are more confident. The ANZ-Roy Morgan weekly consumer sentiment index is at 13-month highs and Westpac-Melbourne Institute’s consumer confidence index hit decade highs in December.

• Reserve Bank Governor Philip Lowe recently said that confidence is the key to Australia’s post-pandemic recovery. And with Australia’s success at supressing the virus and a Covid-19 vaccine rollout on the horizon, ‘cashed up’ households appear willing to draw down on their emergency pandemic savings and spend. A recent survey by Finder.com found that the average Australian expects to spend $893 on Christmas presents this year, providing a $17.3 billion boost to the domestic economy.

• Of course, another ‘feel good’ factor is optimism about home prices. Mortgage rates are at rock bottom and demand for standalone houses is strong as Aussies reassess their living arrangements during the pandemic. Expat Aussies are also returning home and ‘splashing the cash’, driving up prices and supporting auction activity. And it appears that the insatiable appetite for residential property will continue over the normally quieter summer months with home buying spending intentions jumping higher in November, according to CBA’s HSI report.

Published by Ryan Felsman, Senior Economist, CommSec