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Consumer confidence hits 8-week low
Card spending lifts; Services sector setback
Consumer confidence; Card Spending; Services gauge

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 1 per cent to an 8-
week low of 92.1 (long-run average since 1990 is 112.8). Sentiment fell for a second successive week, but is still up by 41 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

Commonwealth Bank (CBA) card spending: According to the Commonwealth Bank (CBA), card spending in the week to July 3 was up 12.1 per cent on a year ago, compared to a 4.5 per cent lift for the week ended June 26. Online spending rose 16.7 per cent (previous week: +7.2 per cent) and in-store spending was up 9.9 per cent (previous week: +5.5 per cent) over the period.

Services gauge: The AiGroup Performance of Services index fell by 0.1 point to 31.5 in June – the 7th successive monthly contraction in activity (reading below 50). The consumer confidence and credit card spending figures have implications for retailers, and other consumer-focussed businesses. The services purchasing managers index provides guidance on conditions in retailing, financial services and the services sector more broadly.

What does it all mean?

The Aussie economy is gradually recovering, but activity is uneven across the country. Commonwealth Bank (CBA) card spending data continues to highlight that containing the virus is the best way to boost economies. In fact, the Aussie states and territories that have been most successful at containing the virus have also been the best performing when it comes to consumer spending. Over the week to July 3, card spending was strongest in Tasmania – up by 20.1 per cent on a year ago – followed by Western Australia (up by 18.8 per cent), South Australia (up by 17.3 per cent) and Queensland (up by 17.2 per cent).

The lockdown of large swathes of suburban Melbourne and the closure of the NSW-Victorian state border are a setback to hopes for a quicker re-opening of Australia’s second largest economy. Victoria had been a stand-out economic performer in the past couple of years, contributing 23.7 per cent to Australia’s overall economic (GDP) growth in 2018-19, according to Bureau of Statistics data. The virus hit to tourism, international education and migration has already been pronounced. And the impact on consumer spending is already evident with CBA card

spending in Victoria last week up by just 5.3 per cent from a year ago – the weakest growth rate across Australia.

Concerns about a ‘second wave’ of virus infections have shown up in recent consumer confidence surveys. In fact, the weekly ANZ-Roy Morgan index hit 2-month lows last week with the much-watched leading indicator of household spending intentions – ‘time to buy a major household item’ sub-index – turning negative for the first time in 6 weeks. While a hard nationwide economic lockdown looks unlikely, Australia’s continued success in containing virus outbreaks is vital to confidence and the tentative improvement in the jobs market.

What do the reports and figures show?

Consumer sentiment – Week ended July 3

The weekly ANZ-Roy Morgan consumer confidence rating fell by 1 per cent to an 8-week low of 92.1 (longrun average since 1990 is 112.8). Sentiment fell for a second successive week, but is still up by 41 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973). Three of the five major components of the index fell last week:

The Commonwealth Bank (CBA) credit card data – Week ended July 3

According to the Commonwealth Bank (CBA), card spending in the week to July 3 was up 12.1 per cent on a year ago, compared to a 4.5 per cent lift for the week ended June 26. Online spending rose 16.7 per cent (previous week: +7.2 per cent) and in-store spending was up 9.9 per cent (previous week: +5.5 per cent) over the period.

CBA Group Economists noted: “CBA household card spend data showed spending continued to improve over
the week to 3 July.”

“Spending online and instore has lifted.”

“Growth in spending on personal care and clothing and footwear lifted over the week.”

“Spending on household furnishings & equipment is very strong.”

“Growth in spending has been strongest in Tasmania.”

“Spending in Victoria continues to lag behind the other states and territories. A reinstatement of some restrictions and lockdowns for some suburbs are likely to weigh on spending in the state.”

AiGroup Performance of Services index – June

The AiGroup Performance of Services index fell by 0.1 point to 31.5 in June – the 7th successive monthly contraction in activity (reading below 50).

By sub-index, employment (-4.3 points to 30.9), new orders (-0.3 points to 30.3), supplier deliveries (-0.4 points to 30.9), capacity utilisation fell by 3.3 percentage points to 66.5 per cent. But sales rose 1 point to 28.7 and finished stocks rose 7.6 points to 43.6 points. And average wages fell by 6.9 points to 38.3 points, selling prices were down 4.5 points to 34 and input prices fell 12.9 points to 49.

According to the AiGroup, “An easing in activity restrictions and government financial stimulus were nominated by respondents as having a positive impact on activity. Infrastructure investment, orders from international customers and the instant asset tax write-off were all reported to provide a positive boost. For a small number of businesses, trade has resumed to pre-pandemic levels.”

And, “Reduced demand was overwhelmingly the most prominent factor affecting services businesses in June. Any effect of increased demand from panic buying has dissipated, the lack of consumer discretionary spending and low demand from the construction industry all weighed heavily on respondents. For businesses who have had ongoing projects the lack of future projects coupled with concern regarding government stimulus ending is leading to

uncertainty about the future.”

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 Australian Industry Group compile the Performance of Manufacturing Index, the Performance of Services index and the Performance of Construction index each month (the latter with the Housing Industry of Australia). The Commonwealth Bank and Markit also compile purchasing manager surveys for manufacturing and services sectors. The surveys are amongst the timeliest economic indicators released in Australia. The surveys are useful not just in showing how key sectors are performing but also in providing some sense about where they are headed. The key ‘forward looking’ components are orders and employment.

What are the implications for investors?

The virus economic shutdown hit the services sector especially hard with gauges of activity plummeting to record low levels worldwide in April. Overnight the US Institute of Supply Management (ISM) non-manufacturing (services) index rose by a record 11.7 points to 57.1 in June – jumping as the US economy continued to re-open.

But it appears that Aussie service sector businesses are still bumping up against a ceiling. The lacklustre AiGroup services index reading in June – broadly unchanged from May and the 7th successive contraction – is a setback given the overseas ‘bounce-back’ and easing of domestic restrictions. As was evident before the pandemic, Aussie private sector demand remains anaemic – weighing on services sector output.

The AiGroup, however, reported business owner optimism around the easing of activity restrictions, increased infrastructure, the extension of the government’s instant asset write-off scheme and improving demand from international customers. That said, worries about the imminent ‘fiscal cliff’, policy uncertainty and continuing weakness in consumer demand continue to weigh on services sector activity, employment and sentiment.

The Reserve Bank is widely expected to keep its ultra-accommodative policy settings unchanged today, so the onus is now on the Federal Government to provide some additional fiscal support – especially to Victoria – when it delivers its economic statement on July 23.

Published by Ryan Felsman, Senior Economist, CommSec