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Consumer confidence hits 15-week high

Job ads up for 5th month; Record exports to US
Consumer confidence; Job advertisements; International trade; Business survey

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.7 per cent to 15-week highs of 95.7 (long-run average since 1990 is 112.6). Confidence has lifted in seven of the past eight weeks. Sentiment is up by 46.6 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

Job advertisements: ANZ job advertisements rose by 7.8 per cent in September to 118,424 available positions. Ads have lifted for five successive months after falling by a record 53.2 per cent in April. Available positions are down by 24.8 per cent from a year ago and are 20.8 per cent below February levels.

Kepler Analytics reported that aggregate retail sales rose by 1.2 per cent last week (October 4), but were still down 21.7 per cent on the year. Average transaction value fell by 1.5 per cent last week, but was still up 16.6 per cent on a year ago. Passer-by traffic lifted 1.4 per cent last week to be down 54.4 per cent on the year. The national weekly store shut down rate was steady at 27 per cent with Victoria’s rate unchanged at 80 per cent.

Foreign trade: The trade surplus decreased to $2.64 billion in August (consensus: $5.05 billion surplus) from $4.65 billion in July. Australia has posted 32 successive monthly trade surpluses. The rolling annual surplus eased to $69.75 billion in the year to August from $73.01 billion in the year to July. Australia exported a record $18.88 billion of goods to the US in the year to August.

Business survey: The NAB business confidence index improved from -8.2 points to -3.8 points in September (long-term average is +5 points). The business conditions index lifted from -6.2 points to an 8-month high of +0.4 points. (long-term average is +5.2 points).

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The job advertisements data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies such as SEEK. The trade data is instructive on income flows in the economy and consumer and business activity.

What does it all mean?

• ‘Super Tuesday’ has begun. While economic data releases will be overshadowed by the Reserve Bank’s interest rate decision and federal budget later today, consumer and business surveys suggest that sentiment is improving. In fact, consumer confidence has lifted in seven of the past eight weeks and is now at the highest level in 15 weeks on the back of slowing new COVID-19 infection rates in Victoria.

• The ANZ-Roy Morgan sub-index measure of ‘current financial conditions’ remains negative, but has lifted to a 5½-month high of -8.3 points, perhaps due to growing household expectations around additional pandemic-related income support measures to be announced in tonight’s budget.

• In another promising development, business conditions – as measured by the NAB (released yesterday) – turned positive for the first time since February, hitting 8-month highs in September. Key components – trading and profitability – hit 14-month and 10-month highs, respectively, as economic activity picked up in the broadly ‘virus free’ states of Western Australia, South Australia and Queensland.

• The gradual recovery in the job market continues. ANZ, SEEK and the Department of Employment’s figures show that job advertisements are above pre-pandemic levels outside of NSW, ACT and Victoria. According to ANZ, available positions lifted for a fifth successive month in September after hitting record low levels in April.

What do the figures show?

Consumer sentiment – Week ended October 4

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.7 per cent to a 15-week high of 95.7 (long-run average since 1990 is 112.6). Confidence has lifted in seven of the past eight weeks. Sentiment is up by 46.6 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

Job advertisements – September

• ANZ job advertisements rose by 7.8 per cent in September to 118,424 available positions. Ads have lifted for five successive months after falling by a record 53.2 per cent in April. Available positions are down by 24.8 per cent from a year ago and are 20.8 per cent below February levels (pre-COVID-19).

• ANZ said, “After only minimal improvement in August, ANZ Job Ads growth accelerated to 7.8 per cent in September. There were week-to-week gains throughout the month, which was positive news given the ongoing restrictions in Victoria. But Job Ads were still down 21 per cent on their February level (pre-COVID-19).”

Kepler index of retail sales activity – Week ended October 4

• Kepler Analytics reported that aggregate retail sales rose by 1.2 per cent last week (October 4), but were still down 21.7 per cent on the year. Average transaction value fell by 1.5 per cent last week, but was still up 16.6 per cent on a year ago. Passer-by traffic lifted 1.4 per cent last week to be down 54.4 per cent on the year. The national weekly store shut down rate was steady at 27 per cent with Victoria’s rate unchanged at 80 per cent.

International trade – August

• The trade surplus decreased to $2.64 billion in August (consensus: $5.05 billion surplus) from $4.65 billion in July. The surplus had hit a record high $10.53 billion in March. Australia has posted 32 successive monthly trade surpluses.

• The rolling annual surplus eased to $69.75 billion in the year to August from $73.01 billion in the year to July.

• Exports of goods and services fell by 4.2 per cent (exports of goods fell by 4.5 per cent).

• Imports of goods and services rose by 2 per cent (goods imports rose by 2.1 per cent).

• Rural exports rose by 12.4 per cent – the biggest monthly lift in 2½ years. Exports of non-rural goods lifted 2.6 per cent. Gold exports plummeted 61.8 per cent in August after a 53.1 per cent lift in July.

• Major moves: Non-monetary gold was down $2,234 million or 62 per cent; ‘Other’ non-rural (i.e. sugar and beverages) fell $193 million or 18 per cent; Metals (excluding gold) were up $263 million or 36 per cent; Cereal grains and cereal preparations lifted $68 million or 21 per cent.

• Within imports, consumer imports climbed 6.3 per cent; capital goods imports decreased 6.9 per cent and intermediate goods imports rose 3.4 per cent.

• Services exports fell 2.6 per cent and services imports rose 1.2 per cent in August.

• A net services surplus of $1.51 billion was posted in August, down from $1.7 billion in July.

• Australia’s annual exports to China fell from $148.08 billion in July to 10-month lows of $146.13 billion in August. Exports to China are up 2.4 per cent on a year ago. Exports to China account for a record 39.5 per cent of Australia’s total exports.

• Australia’s annual imports from China lifted from $81.84 billion in July to a record $82.45 billion in August. Annual imports were up by 5.6 per cent on a year ago. Imports from China accounted for a record 27.84 per cent of Australia’s total imports.

• Australia’s rolling annual trade surplus with China fell from $66.23 billion in July to 13-month lows of $63.68 billion in August.

• Australia exported a record $18.88 billion of goods to the US in the year to August and imported $36.39 billion.

National Australia Bank Business Survey – September

• The business confidence index improved from -8.2 points to -3.8 points in September (The long-term average is +5 points). Confidence had previously hit record lows of -65.7 points in March.

• The business conditions index lifted from -6.2 points to 8-month highs of +0.4 points. (The long-term average is +5.2 points). Conditions had previously hit record lows of -33.8 points in April.

• The rolling annual average business confidence index was steady at -14.2 points. The rolling annual average business conditions index was unchanged at -7.1 points.

• The survey was conducted in the period September 15-25, 2020 across 400 firms.

• Key Components: The index of trading conditions rose from -2 points to +6.4 points; employment improved from ‑14 points to -5.8 points; profitability rose from -3 points to +1.7 points; forward orders rose from -10.9 points to ‑6.7 points; stocks improved from -7.9 points to -4.5 points; exporter’s sales increased from ‑20.2 points to ‑13.7 points.

• Inflationary indicators: The monthly reading of labour costs fell at a 0.2 per cent quarterly rate in September after falling 0.8 per cent in August. Purchase costs were up 0.4 per cent (August: +0.1 per cent). Final product prices fell at a 0.2 per cent quarterly rate (August: -0.3 per cent). Retail prices were up 0.4 per cent (August: +0.6 per cent quarterly rate).

• Capacity utilisation rose from 76.4 per cent to 76.9 per cent (81 per cent is the long-term average).

• The proportion of firms reporting that they did not require credit lifted from near 50 per cent to near 58 per cent.

• NAB noted, “Overall, the survey saw a modest improvement in September. Conditions are around the levels seen in early 2020 but remain well below average. The improvement in conditions was driven by a rise in all three subcomponents – trading and profitability are in positive territory, likely reflecting improving activity as the economy opens up. The employment index remains negative, suggesting that business remains cautious and not yet ready to restore previous employment levels. The impact of the virus remains evident in Vic where conditions are notably weaker than the other states. On the other hand, conditions are now above average in WA, SA and Qld pointing to an ongoing recovery in those states. NSW remains negative but also improved in the month. Confidence saw further improvement in the month and is well above the March trough, but remains in negative territory. While confidence and conditions have rebounded relatively quickly, forward looking indicators remain soft after only seeing marginal gains in recent months. Forward orders remain very weak which likely is a driver of weak confidence and suggests that capacity utilisation will likely only gradually recover.”

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 monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.

• Kepler Analytics have “sensors in over 3500 locations globally, collecting traffic and other consumer behaviour data anonymously.” Kepler notes, “Our clients provide us with their daily sales targets, actual POS sales and other specific data points on which they measure and manage their businesses. By aggregating and anonymising this information, we can provide unique insights into the Retail Industry as a whole.”

• The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

• The monthly National Australia Bank business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.

What are the implications for investors?

• The trade surplus has peaked for now. Escalating trade tensions with China have shown up in the August trade data – measures such as tariffs, anti-dumping measures and port restrictions on barley, wine and beef. Australia’s rolling annual trade surplus with China hit 13-month lows of $63.68 billion with exports (rolling annual $146.13 billion) at 10-month lows. But Aussie imports from China are still at record highs on a rolling annual basis at $82.45 billion. That said, exports to the US – our major political ally – hit record highs in August.

• While rural exports continue to be volatile, a nascent recovery in imports continued in August. In a sign that domestic demand is improving off low levels, imports of consumption goods rose by 6.3 per cent – up for a third successive month to be above pre-COVID levels.

Published by Ryan Felsman, Senior Economist, CommSec