Consumer confidence lifts for 8 successive weeks

Credit & debit card spending lifts
Consumer confidence; CBA credit & debit card spending data

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.4 per cent to 92.7 points. Sentiment has lifted for eight straight weeks and is up 42 per cent since hitting record lows.

Mixed consumer views on their finances and economic outlook: According to ANZ and Roy Morgan, consumer views on their ‘current finances’ fell by 1.8 per cent last week, while ‘future finances’ gained 3.2 per cent. And consumer views on ‘current economic conditions’ gained 0.3 per cent, while ‘future economic conditions’ declined by 2.4 per cent. Consumer views on whether it’s ‘time to buy a major household item’ lifted by 2.5 per cent.

Commonwealth Bank (CBA) credit and debit card lending: According to CBA, spending in the week to May 22 was up 3.9 per cent on a year ago with online spending up 12.7 per cent and in-store spending up 0.6 per cent. And “New data on spending through CBA in-store merchant facilities, which also captures business card spending and spending by foreigners, shows a similar trend improvement in spending, albeit growth rates are lower [at -7.5 per cent].”

Aussie hotel occupancy levels plummet: Data from hotel analysts STR today shows that in April hotel occupancy rates fell by 72.7 per cent over the year to 19.9 per cent. In the larger markets of Melbourne and Sydney, occupancy rates declined by 65 per cent and 73.7 per cent, respectively.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The CBA credit & debit card spending data provides guidance for consumer-focussed businesses.

What does it all mean?

• Aussie consumer confidence has improved for eight successive weeks and is now up 42 per cent after hitting record lows on March 29 (lowest since 1973). Households have been heartened so far by Australia’s success in avoiding a catastrophic outbreak of the pandemic which has tragically taken so many lives globally. A semblance of ‘normalcy’ is returning with adherence to social distancing measures enabling some businesses to reopen, the kids to return to school and the footy to resume shortly.

• Of course the future appears much better than at the height of the pandemic outbreak, but sentiment is stuck well below its long-run average (of 112.9 points). And consumers remain cautious about their finances and worried about the economic outlook due to high unemployment, elevated household mortgage debt and early signs of an easing in property prices.

• Worries also still persist about a potential second wave of coronavirus infection transmissions during the winter months. And concerns about the longevity of government support measures have been heightened by increased speculation that the JobKeeper wage subsidy package may be scaled back after the Federal Treasury revealed a $60 billion ‘shortfall’ in the take up of the scheme – relative to its original estimates.

• After ‘tightening their belts’ and ‘bunkering down’ for a couple of months, consumers appear more ready to spend. In fact, spending on credit and debit cards by Commonwealth Bank (CBA) customers continues to pick up. In particular, greater mobility as the lockdown is eased, has seen modest increases in in-store sales (up 0.6 per cent).

• Consumers appear keener to upgrade their wardrobes perhaps due to a return to work and colder weather. Spending on apparel and footwear is up by 8.3 per cent over the year to May 22. Retailers are also reporting that younger Aussies are ‘hoovering up’ fashionable sneakers using their JobKeeper ‘income’ and superannuation withdrawal payments.

• In fact, data from bank regulator APRA last week shows that Aussies withdrew $10.6 billion from their super funds over the period ended May 17. And wages for those under 20 years surged by 16.8 per cent between March 14 and May 2 as the JobKeeper payments were made, according to Bureau of Statistics and Tax Office payroll data.

What do the reports and figures show?

Consumer sentiment – Week ended May 24

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.4 per cent to 92.7 points. Sentiment has lifted for eight successive weeks since hitting record lows (lowest since 1973) of 65.3 points on March 29.

• Three of the five major components of the index rose last week:

The estimate of family finances compared with a year ago was down from -11.4 points to -13 points;

The estimate of family finances over the next year was up from +17 points to +20.7 points;

Economic conditions over the next 12 months was up from -41.5 points to -41.3 points;

Economic conditions over the next 5 years was down from +2.4 points to -0.1 points;

The measure of whether it was a good time to buy a major household item was up from -5.1 points to -2.7 points.

• The measure of inflation expectations fell from 3.3 per cent to 3.2 per cent.

The Commonwealth Bank (CBA) credit card data – Week ended May 22

• CBA card data shows spending in the week to May 22 was up 3.9 per cent on a year ago with online spending up 12.7 per cent and in-store spending up 0.6 per cent.

• But CBA Group economists cautioned, “While it’s great to see an improvement in spending we note that spending growth is still running below where it was in early January before the coronavirus hit. And many stores are taking card payments only (no cash) because of the coronavirus which flatters the annual growth rate.”

• nd, “modelled spending through CBA merchant facilities is down 7.5 per cent over the year compared to a small 0.6 per cent/yr. rise for the CBA in-store card spend data. The difference is partly explained by the drop in overseas resident spend which has fallen significantly because of the plunge in overseas arrivals. Business card spend is also likely to have contracted by more than household spend given the big increase in the number of people working from home and the decline in domestic business‑related travel. These differing results also suggest our data is better used to assess the broad trends in spending rather than the outright levels.”

• In terms of the categories, “Clothing and personal care are continuing to recover. People are going back to work and school and are starting to head out to socialise more which is likely prompting a wardrobe refresh. The winter weather has also hit. Personal care spending is likely to improve further as barbers, hair and beauty salons etc. continue to open for business again,” according to the CBA.

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) household 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.

What are the implications for investors?

• It’s no coincidence that those Aussie states and territories recording the biggest pick up in credit and debit card spending are also those that have the lowest active virus cases. The Northern Territory, Tasmania, South Australia, Queensland and Western Australia are all leading the recovery in consumer spending, according to CBA data as confidence improves. But hotel occupancy data released today suggests that governments with key tourism-dependent regions may want to reconsider their decision to keep borders closed with hotels and their workers continuing to suffer from the tourism downturn.

• Prime Minister Scott Morrison is expected to turn his attention to Australia’s ailing job market in his speech to the National Press Club today. With unemployment still expected to lift in the coming months and concerns about an ‘income cliff’, the Prime Minister is expected to target Australia’s near $8 billion vocational education and training sector. With youth unemployment and underutilisation rates skyrocketing to 13.8 per cent and 37.3 per cent respectively in April, clearly more needs to be done to support younger Aussies impacted by the loss of jobs and hours due to the virus lockdown.

• Skilled education remains key to Australia’s future workforce as we rebuild our economy after the virus crisis. The country continues to languish below our OECD peers in education rankings and our Economic Complexity Index ranking is a dismal 59th. While upskilling our tradies for the construction sector is vital, confronting the post COVID-19 world with more engineers, scientists and other professional technicians to support high-tech manufacturing and other related growth sectors of the economy are equally important. Perhaps the $60 billion over-estimate of JobKeeper spending could be partially directed towards our TAFEs and universities for local students faced with high unemployment?

Published by Ryan Felsman, Senior Economist, CommSec