Consumer pessimism on the economy hits record low

Lockdown weighs on WA card spending; Payrolls lift
Weekly consumer confidence; CBA card spending; Payrolls & wages; China data

• Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 1 per cent to 111.6 (long-run average since 1990 is 112.6). Consumer views on ‘current economic conditions’ rose 2.8 per cent with a record low 12.1 per cent of respondents expecting ‘bad times’ in the next 12 months.

• Credit & debit card spending: The Commonwealth Bank (CBA) measure of household card spending in the week to May 7, 2021 was up by 18.5 per cent on 2019. Western Australia spending growth eased to 15 per cent over the week to May 7, 2021 when compared with 2019, down from a 31.4 per cent growth rate in the previous fortnight (week to April 24, 2021). CBA is using 2019 as the base of comparison, rather than 2020, noting it was a more “normal” year for spending.

• Survey of payrolls & wages: The Bureau of Statistics (ABS) reported that national payroll jobs rose by 0.4 per cent over the fortnight ended April 24, 2021. And wages were up 0.3 per cent over the period.

• China inflation: Chinese consumer prices rose by 0.9 per cent over the year to April (survey: +1 per cent). And producer prices grew by 6.8 per cent in April on a year ago (survey: +6.5 per cent).

The consumer confidence and CBA card spending figures have implications for retailers, and other consumer-focussed businesses. The payroll and wage data helps government with decisions on assistance measures for households and businesses. The Chinese data have implications for the currency markets and therefore exporters and importers.

What does it all mean?

• Consumer sentiment, as measured by ANZ and Roy Morgan, has fallen in six of the past nine weeks, undermined by persistent Covid-19 flare-ups and government restrictions. Confidence in Sydney fell 7.6 per cent last week after restrictions were imposed to prevent another potential virus outbreak on May 6, 2021. That said, the ‘light touch’ measures – which have been extended for a week – are expected to have little impact on consumer spending with retailers remaining open for shoppers, including over the busy Mother’s Day weekend.

• But the impact of ‘mini’ and ‘snap’ lockdowns on retail trade is clear. Commonwealth Bank (CBA) credit and debit card spending in Western Australia fell following a snap lockdown in Perth, Peel and Rottnest Island from April 24, 2021. Spending growth eased to 15 per cent over the week to May 7, 2021 when compared with 2019, down from a 31.4 per cent growth rate in the previous fortnight (week to April 24, 2021).

• But it wasn’t all bad news. While three out of the five underlying sub-indexes of the ANZ-Roy Morgan consumer confidence rating fell last week, consumer views on ‘current economic conditions’ rose by 2.8 per cent to 9.8 points with a record low 12.1 per cent of respondents expecting ‘bad times’ in the next 12 months. Of course, Australia’s successful suppression of the virus, rapid jobs recovery and the Reserve Bank’s insistence that it will keep interest rates at record low levels for an extended period have boosted consumer sentiment towards the economy.

• Federal Treasurer Josh Frydenberg said that he will hand down a “jobs Budget” tonight. Both fiscal and monetary policymakers are determined to drive down unemployment and stoke wages and inflation after the pandemic shock. While payroll jobs rose by 0.4 per cent over the fortnight to April 24, 2021, payrolls are still down 1.2 per cent since March 27, 2021 – just prior to the JobKeeper wage subsidy expiry. That said, the Bureau of Statistics cautioned, “Seasonality around Easter in the previous fortnight makes it difficult to gauge any effect of the end of the JobKeeper wage subsidy on 28 March. The latest fortnight of payroll jobs data continues to show some of the seasonality around school holidays.”

What do you need to know?

Consumer sentiment – Week ended May 9

The weekly ANZ-Roy Morgan consumer confidence rating fell by 1 per cent to 111.6 (long-run average since 1990 is 112.6). But confidence is up by 70.9 per cent since hitting record lows of 65.3 on March 29, 2020 (lowest since 1973). Three out of the five major components of the index fell last week:

The Commonwealth Bank (CBA) credit and debit card data – Week ended May 7

• The Commonwealth Bank (CBA) measure of household card spending in the week to May 7, 2021 was up by 18.5 per cent on 2019. CBA is now using 2019 as the base of comparison, rather than 2020, noting it was a more “normal” year for spending.

• Online spending (up 31.2 per cent) is growing at a much faster rate than 2019 with in-store spending up 15.4 per cent. Spending on goods (up 24.7 per cent) and services (up 12.3 per cent) also moved higher over the period.

• According to CBA economists, “This is roughly the same momentum as we saw throughout March, before the Easter period added some volatility to the week to week moves in April.

• Encouragingly spending on services is gradually moving higher. This has provided support for the recovery in the labour market and we expect this to continue. Eating and drinking out card spend is performing well.

• As border closures become less frequent there is room for recreation and transport spend to lift.

• The lockdown in WA did see spending growth in that state retreat in the past fortnight.

• We expect to see very limited impact from recent restrictions placed on Greater Sydney which commenced 5pm on 6 May.”

Weekly payrolls and wages – Week ending April 24

• The Bureau of Statistics (ABS) reported that national payroll jobs rose by 0.4 per cent over the fortnight to April 24, 2021 with wages up by 0.3 per cent.

• Over the year (since April 11, 2020) payroll jobs were up by 10.6 per cent with wages up 9.2 per cent.

• Compared with the start of the pandemic (since Australia recorded its 100th confirmed case of Covid-19 on March 14, 2020) payroll jobs are up 1.9 per cent and wages up 2.8 per cent.

• Over the fortnight to April 24, 2021, the biggest payroll job gains were in the Northern Territory (up 0.9 per cent) and Queensland (up 0.7 per cent). The smallest gains were in Western Australia (up 0.1 per cent), the ACT and Tasmania (both up 0.2 per cent). Wages rose most in the Northern Territory (up 2.1 per cent), but fell in Western Australia (down 0.6 per cent).

• Across sectors, jobs in information media and telecommunications increased by 2.2 per cent, but payrolls fell 1.4 per cent in agriculture, forestry and fishing.

• By employment size, payroll jobs fell for businesses with less than 20 employees (down 1.3 per cent), but lifted for firms with 20-199 employees (up 0.2 per cent) and larger businesses with more than 200 employees (up 1.3 per cent).

• By gender, payroll jobs for females and males both lifted 0.3 per cent. But female wages were flat and male wages rose 0.5 per cent.

• By age, payroll job gains were strongest for 15-19 year olds (up 3.1 per cent) with jobs for 70+ year olds down by 0.7 per cent. Wages lifted most for workers aged 40-49 and 50-59 years (both up 0.5 per cent), but fell 1.1 per cent for those aged 70 years and over.

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 ABS data Weekly payroll jobs and wages “provides indicative information on the economic impact of the COVID-19 coronavirus on employees, including changes in employee jobs, changes in total wages, and changes in average weekly wages per job.”

• China’s National Bureau of Statistics releases its economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy has major implications for the Aussie economy.

What are the implications for investors?

• Attention now turns to tonight’s Federal Budget. The Budget is likely to be supportive of business and consumer confidence with around $50 billion of new spending measures expected to be announced by Federal Treasurer Josh Frydenberg. The policy stimulus could benefit women, older Australians, single parents, working families, first homebuyers, childcare providers, builders, brewers, small businesses and the unemployed.

• Inflation? Consumer prices in boom economy China remain subdued. Consumer prices lifted 0.9 per cent in April on a year ago. But soaring commodity prices, supply shortages and lifting global demand have boosted factory-gate prices in the world’s second largest economy. In fact, producer prices surged 6.8 per cent in April on a year ago – the strongest annual pace since October 2017. It appears only a matter of time before manufacturers pass on higher costs and prices to retailers and consumers.

Published by Ryan Felsman, Senior Economist, CommSec