Consumer inflation and lockdown concerns hit confidence

Consumer confidence

What happened? The weekly ANZ-Roy Morgan consumer confidence rating fell by 3.5 per cent to an 8-month low of 100.7 (long-run average since 1990 is 112.6). Consumer inflation expectations over the next two years rose from 4.2 per cent to a 15-month high of 4.3 per cent last week.

Implications: There is likely to be more focus on the financial year 2022 earnings guidance in the upcoming company reporting season than financial year 2021 results. Given the ongoing uncertainty about the length of Covid-19 lockdowns, some retailers and retail property owners may cautiously withhold their guidance. That said, select retailers could benefit as consumers increase spending on groceries, home office and household goods.

The consumer confidence data has implications for retailers, and other consumer-focussed businesses.

What does it mean?

• Consumer confidence, as measured by ANZ and Roy Morgan, has plunged 10.4 per cent since Sydney’s first positive community case of the Covid-19 delta variant on June 16, 2021. In fact, sentiment is now at the lowest level since the gauge briefly dipped below the 100 mark – which separates optimists from pessimists – on November 1, 2020. While confidence fell by 2.2 per cent in Sydney last week, declines were much greater in lockdown-weary Melbourne (-6.4 per cent) and Perth (-4.6 per cent). Surprisingly, confidence was down 6.1 per cent in Brisbane, despite the euphoric scenes in the city after it was confirmed as the host of the 2032 Olympic Games.

• The survey continues to highlight how worried Aussies are about the highly infectious delta variant’s impact on their health, finances and job security. In fact, consumer views on ‘current economic conditions’ slumped 6.0 per cent last week and ‘current financial conditions’ shed 3.4 per cent, despite government income support for workers and businesses impacted by government ‘stay at home’ orders.

• Inflation remains a top concern for Aussie consumers worried about rising cost of living pressures. Rising prices for food, petrol, homes, household durables and petrol are apparent in the ANZ-Roy Morgan survey. In fact, consumer inflation expectations over the next two years rose from 4.2 per cent to a 15-month high of 4.3 per cent last week. So all eyes will be on tomorrow’s June quarter, 2021 inflation report where the annual growth rate of the headline Consumer Price Index (CPI) could accelerate to 3.8 per cent – the strongest pace since the September quarter, 2008.

• Perhaps of even greater concern to policymakers was consumers views on whether it is a ‘good time to buy a major household item’ with this measure down 6.6 per cent last week.

• Commonwealth Bank (CBA) Group economists also released timely credit and debit card spending data today. Nationally, CBA card spending is up just 2.4 per cent for the week ending 23 July 2021 when compared to 2019 levels. But spending in NSW fell by 2.7 per cent with NSW metro spending down 9.6 per cent for the week ending 23 July 2021 when compared to 2019 levels. And in Victoria, CBA card spending was down 7.0 per cent when compared to 2019 for the week ending 23 July 2021.

• Investors in Aussie consumer discretionary companies have enjoyed decent returns so far in 2021. The S&P/ASX 200 Consumer Discretionary index is up around 20 per cent at the time of writing, outperforming all other index sectors and overseas peers. There is likely to be more focus on the financial year 2022 earnings guidance in the upcoming company reporting season than financial year 2021 results. Given the ongoing uncertainty about the length of Covid-19 lockdowns, some retailers and retail property owners may cautiously withhold their guidance. That said, select retailers could benefit as consumers increase spending on groceries, home office and household goods, as well as online purchases.

What do you need to know?

Consumer sentiment – Week ended July 25

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 3.5 per cent to 100.7, the lowest level in eight months (long-run average since 1990 is 112.6). All five major sub-components fell last week:

Published by Ryan Felsman, Senior Economist, CommSec