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Consumer spending intentions hit 11-week low

Biggest fall in Chinese imports in 11 months
Consumer confidence; CBA card spending; Preliminary international trade

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6 per cent to 109.2 – a third successive weekly decline (long-run average since 1990 is 112.6). But confidence is still up by 67.2 per cent since hitting record lows of 65.3 on March 29, 2020 (lowest since 1973).

Households hold back on major purchases: Last week the measure of whether it was a ‘good time to buy a major household item’ fell by 3.9 per cent to an 11-week low of 12.4 points.

Commonwealth Bank card spending: According to the Commonwealth Bank (CBA), credit and debit card spending in the week to February 19 lifted by 7 per cent on a year ago (previously: +13 per cent). But annual card spending fell by 7 per cent in Victoria (previously: +12 per cent) – the biggest contraction in spending since the week ended October 23, 2020.

Preliminary merchandise trade: In original terms, the value of exports of goods fell by 8.7 per cent in January but were still 13.0 per cent higher than a year ago. The value of goods imported fell by 10.1 per cent in January to be 6.9 per cent lower than a year ago. The goods trade surplus was $8.754 billion – the fifth highest on record. Exports to China fell by 8.2 per cent to $12,446 million in January while imports from China fell 17.5 per cent to $6,739 million – the biggest monthly decline in 11 months.

The consumer confidence and card spending intentions figures have implications for retailers, and other consumer-focussed businesses. The trade data is instructive on income flows in the economy and consumer and business activity and has implications for the currency.

What does it all mean?

• Consumer sentiment, as measured by Roy Morgan and ANZ, has fallen by 2.6 per cent in the first three weeks of February due to virus flare-ups and lockdown fatigue. Sentiment had hit 15-month highs at the end of January, but snap lockdowns in both Victoria and Western Australia have weighed on consumer morale. While government restrictions have since eased, ANZ economists reported that consumer sentiment in regional Victoria slumped 10.5 per cent last week after confidence in Greater Melbourne slid by 5.4 per cent in the previous week.

• With vaccinations commencing, government restrictions easing and the job market continuing to improve, consumer sentiment should pick up. But the imminent tapering of government payments – JobKeeper and the Coronavirus Supplement – could affect the incomes of recipients should they lose their job in late March or beyond. Deloitte Access Economics estimates that there could be $5 billion less in government support flowing through the economy each month. And the more cautious stance of consumers was evident with the measure of whether it was a ‘good time to buy a major household item’ down by 3.9 per cent to an 11-week low of 12.4 points.

• Commonwealth Bank household credit and debit card spending slowed sharply last week, dragged lower by a slump in spending in Victoria due to the 5-day lockdown. Annual card spending fell by 7 per cent in Victoria (previously: +12 per cent) – the biggest contraction in spending since the week ended October 23, 2020. That said, observed historical data shows that spending tends to bounce-back quickly once government restrictions are lifted. In fact, Western Australian card spending snapped-back to a 12 per cent annual growth rate last week after contracting by 3 per cent in the first week of February.

• Australia likely posted a 37th successive monthly trade surplus in January. The good news: the value of iron ore exports were the second highest on record at $14.19 billion, despite a decline of 9.8 per cent from record highs of $15.74 billion in December. Yesterday, the iron ore price rose by US$3.40 a tonne or 2 per cent to US$175.60 a tonne as investors bet the global economic recovery would boost steel demand. Steel rebar futures in China traded near the highest level since 2011. A nice little earner for Western Australia!

• Exports to China fell by 8.2 per cent to $12,446 million in January while imports from China fell 17.5 per cent to $6,739 million – the biggest monthly decline in 11 months. The drop in exports could reflect trade tensions. Aussie meat exports – subject to Chinese trade restrictions – fell by 39.1 per cent to $760 million in the month.

• The drop in Chinese imports could reflect production delays caused by a lack of manpower and parts (notably semi-conductors). Machinery imports fell 15.7 per cent in the month. And road vehicle imports dropped 22.7 per cent in January to $2,881 million.

What do you need to know?

Consumer sentiment – Week ended February 21

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.6 per cent to 109.2 – a third successive weekly decline (long-run average since 1990 is 112.6). But confidence is still up by 67.2 per cent since hitting record lows of 65.3 on March 29, 2020 (lowest since 1973).
The Commonwealth Bank (CBA) credit and debit card data – Week ended February 19, 2021

• According to the Commonwealth Bank (CBA), credit and debit card spending in the week to February 19, 2021 lifted by 7 per cent on a year ago (previously: +13 per cent). Spending on services rose 2 per cent from a year ago (previously: +6 per cent). The annual growth rate of goods spending climbed 13 per cent (previously: +21 per cent).

• Over the week, the strongest annual card spending growth rate was in Northern Territory (+19 per cent), followed by Tasmania (+17 per cent), South Australia (+16 per cent), Queensland (+14 per cent), NSW (+12 per cent), Western Australia (+12 per cent), the ACT (+9 per cent) and Victoria (-7 per cent).

Preliminary international trade – January

• According to the Bureau of Statistics (ABS), in original terms, the value of exports of goods fell by 8.7 per cent to $32.13 billion. Exports are 13.0 per cent higher than a year ago.

• The value of goods imported fell by 10.1 per cent to $23.37 billion. Imports are 6.9 per cent lower than a year ago.

• The goods trade surplus was $8.754 billion – the fifth highest on record – but down from the $9.175 billion surplus in December.

• In the year to January the goods trade surplus (exports less imports) was $75.2 billion, up from $69.8 billion in December but off the record high of $87.3 billion in the year to April 2020.

• According to the ABS, “The decline in metalliferous ores was driven by a decline in the quantity of iron ore exported in January. Despite the decline, exports of metalliferous ores are the second highest on record behind December 2020.”

• Exports of meat (down 39 per cent) and coal (down 8 per cent) also drove the decline in January.

• Imports declined $2.6 billion (-10 per cent), driven by a decline of $845 million (-23 per cent) in road vehicles.

• “A drop in global car manufacturing is leading to supply shortages, with the imports of road vehicles from Japan and Thailand, Australia’s two largest road vehicle source countries, driving the decline in January imports.”

• Declines were also recorded in general industrial machinery, down $234 million (-16 per cent) and miscellaneous manufactured articles, down $196 million (-13 per cent).”

• Exports to China fell by 8.2 per cent to $12,446 million in January while imports from China fell 17.5 per cent to $6,739 million – the biggest monthly decline in 11 months.

• Australia’s annual exports to China rose from $145.06 billion in December to $146.52 billion in January. Exports to China are down 2.1 per cent on a year ago.

• Australia’s annual imports from China fell from $84.42 billion in December to $83.98 billion in December. Annual imports were up 6.5 per cent on a year ago.

• Australia’s rolling annual trade surplus with China rose from $60.65 billion in December to $62.54 billion in January.

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 monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

What are the implications for investors?

• Attention now turns to tomorrow’s release of the Wage Price Index. Commonwealth Bank Group economists estimate that wage growth was 0.3 per cent in the December quarter with the annual growth rate likely falling to a record low of just 1.1 per cent.

• While the labour market recovery has been strong, there will be a sharper focus on Aussie pay packets as government income support is wound back and spare capacity remains.

• Today the Federal Government announced a $50 per fortnight permanent lift in the base rate of the JobSeeker payment when the Coronavirus Supplement ends next month – a potential boost for those that are unfortunate enough to remain out of work when the JobKeeper wage subsidy expires in late March.

Published by Ryan Felsman, Senior Economist, CommSec