Consumer confidence hits an 8-month high

Consumer inflation expectations hit record low
Consumer confidence; CBA card spending; Retail sales

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.6 per cent to an 8-month high of 99.7 (long-run average since 1990 is 112.6). Confidence has lifted in 10 of the past 11 weeks. Sentiment is up by 52.7 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

Inflation expectations: Consumer inflation expectations over the next two years fell from 3.5 per cent to 3 per cent last week – the lowest level since October 5, 2014 (when records began).

Commonwealth Bank (CBA) card spending: According to the Commonwealth Bank (CBA), card spending in the week to October 23 lifted 4.4 per cent on a year ago compared to a 6.9 per cent lift for the week ended October 9 (previous update). Online spending rose 18.1 per cent on a year ago (previous update: +24.7 per cent), but in-store spending was down 0.7 per cent (previous update: -0.1 per cent).

Kepler Analytics reported that aggregate retail sales fell by 1 per cent last week (October 25) to be down 29.8 per cent on the year. Average transaction value fell by 0.6 per cent last week, but was still up 25.6 per cent on a year ago. Passer-by traffic lifted 0.7 per cent last week but was still down 62.5 per cent on the year. The national weekly store shutdown rate rose from 26 per cent to a 5-week high of 28 per cent last week with Victoria’s rate unchanged at 80 per cent.

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

What does it all mean?

• Consumer confidence hit an 8-month high of 99.7 points last week – a smidgen below the 100 point level last seen on March 15 – the level that separates optimists from pessimists. The improvement in the Aussie virus backdrop – especially in Melbourne – saw all five major components of the ANZ-Roy Morgan sentiment gauge lift last week. In fact, consumer views on ‘current financial conditions’ lifted most – up 3.5 per cent – ahead of an expected Reserve Bank interest rate cut on Melbourne Cup Day. And views on whether it’s a ‘good time to buy a household item’ rose by 0.4 per cent to an 18-week high of 5 points.

• The pandemic recession continues to confound. Ahead of tomorrow’s September quarter Consumer Price Index (CPI) print, the inflation expectations of Aussie consumers hit record lows (since October 5, 2014) last week. Certainly, consumer price pressures remain benign with clothing & footwear, and fruit and vegetable prices expected to ease in the quarter. Moreover, home rental costs have fallen. But with high unemployment and rising utility bills, cost of living pressures remain acute for vulnerable Australians.

The Commonwealth Bank (CBA) credit card data – Week ended October 23

• According to the Commonwealth Bank (CBA), card spending in the week to October 23 lifted 4.4 per cent on a year ago compared to a 6.9 per cent lift for the week ended October 9 (previous update). Online spending rose 18.1 per cent on a year ago (previous update: +24.7 per cent), but in-store spending was down 0.7 per cent (previous update: -0.1 per cent).

• Annual spending fell the most on communications (-6.2 per cent for the week ended October 23 from +5.4 per cent for the week ended October 9), clothing & footwear (-8.1 per cent from +2.9 per cent previously) and fuel (‑4.1 per cent from +4.7 per cent previously). Spending on general retail was up 5.7 per cent after lifting 4.2 per cent previously.

• Victorian card spending was down 8.7 per cent on a year ago (previous update: ‑7.3 per cent), but Tasmanian spending was up 13.7 per cent (previous update: +15.4 per cent) compared to a year ago. Annual spending is also up between 10.7 per cent and 13.2 per cent in Northern Territory, South Australia, Western Australia and Queensland.

Kepler index of retail sales activity – Week ended October 25

• Kepler Analytics reported that aggregate retail sales fell by 1 per cent last week (October 25) to be down 29.8 per cent on the year. Average transaction value fell by 0.6 per cent last week, but was still up 25.6 per cent on a year ago. Passer-by traffic lifted 0.7 per cent last week but was still down 62.5 per cent on the year. The national weekly store shutdown rate lifted from 26 per cent to 28 per cent last week with Victoria’s rate unchanged at 80 per cent.

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.

• 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.”

What are the implications for investors?

• Victorians have conquered the second wave of the virus, recording a second consecutive day of zero new COVID-19 cases and deaths. And from midnight, retailers, restaurants, cafes and bars can re-open. The timing couldn’t be better as 80 per cent of Victorian retail stores remained closed last week with major shopping precincts all shut according to Kepler Analytics – Chadstone, Chapel Street, DFO Moorabbin, DFO Essendon, Westfield Fountain Gate and Melbourne Central.

• Overall, the weekly Kepler Aussie retail store shutdown rate hit a 5-week high of 28 per cent last week with a surprise lift in closures in relatively ‘virus free’ states and territories, such as Tasmania (13 per cent last week, up from 8 per cent in the prior week), Northern Territory (10 per cent last week, up from zero closures the previous week) and Western Australia (9 per cent last week, up from 7 per cent in the prior week). But with the easing of restrictions in Melbourne, it’s hoped that Victorians safely ‘flock to the shops’ and engage in some virus ‘revenge spending’ – boosting national consumption as spending ‘normalises’ elsewhere.

What do the figures show?

Consumer sentiment – Week ended October 25

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.6 per cent to an 8-month high of 99.7 (long-run average since 1990 is 112.6). Confidence has lifted in 10 of the past 11 weeks. Sentiment is up by 52.7 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

• ANZ noted, consumer sentiment “in Sydney and Melbourne are now close to neutral.”

Published by Ryan Felsman, Senior Economist, CommSec