COVID-19 belts business; Petrol price still sliding

Weekly Petrol Prices; NAB Survey; Credit/debit cards

Petrol prices: According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 6.5 cents to a 3½-year low of 114.0 cents a litre last week.

Business survey: The NAB business confidence index fell from -2.4 points to -65.6 points in March – the weakest result on record. (The long-term average is +5.5 points). And the business conditions index fell from +0.2 points to -21.1 points – the largest decline on record. (The long-term average is +5.6 points). The survey was conducted in the period March 25-April 1, 2020 across 500 firms.

Card purchases: By value, the sum of credit & debit card purchases rose by 0.1 per cent in February. Card purchases were up 5.9 cent on the year. Smoothed annual growth (12-month average) was steady at 6.4 per cent in February. The growth rate appears to have bottomed at 5.7 per cent in October after falling from 7.5 per cent over the previous 18 months.

Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. The business survey has broad implications for investors and the economy.

What does it all mean?

• Like most economic data released recently, the business survey results couldn’t be forecast with precision but the results were entirely understandable. Businesses are dealing with something that they haven’t seen before. And business owners are worried. These are testing times for everyone.

• But the economic support measures from central banks and government will clearly help in coming months. And the virus containment measures are working. It will just take time. And if governments need to do more, they will.

• The OPEC+ group of oil producers (OPEC plus allies like Russia) have agreed to cut production by 9.7 million barrels per day from May 1 – the largest output cut in history. But analysts aren’t convinced that the reduction will be enough to match weaker oil demand. OPEC+ may have put a temporary floor in place for the oil price for now. But it is hard to see a marked rebound in prices until a vaccine is found for the virus.

• One of the best measures of economy-wide spending is the sum of credit and debit card purchases. Ahead of the virus crisis, spending was good, rather than great. Annual growth was near 6 per cent. The measure will be interesting to watch over the next few months.

What do the figures show?

Petrol prices

• According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 6.5 cents to a 3½-year low of 114.0 cents a litre last week. The metropolitan price fell by 7.6 cents to 110.6 cents a litre and the regional price was down 4.2 cents to 120.7 cents a litre.

• Average unleaded petrol prices across states and territories over the past week were: Sydney (down 8.4 cents to 109.1 c/l), Melbourne (down by 10.6 cents to 115.6 c/l), Brisbane (down by 11.3 cents to 107.3 c/l), Adelaide (up by 7.1 cents to 110.1 c/l), Perth (down by 5.3 cents to 101.2 c/l), Darwin (down by 2.7 cents to 125.8 c/l), Canberra (down by 6.1 cents to 127.2 c/l) and Hobart (down by 3.4 cents to 135.1 c/l).

• The smoothed gross retail margin (2-month rolling average) for unleaded petrol rose from 21.35 cents a litre to a record high of 22.24 cents (24-month average: 13.3 cents a litre).

• The national average diesel petrol price fell by 2.8 cents to 131.3 cents a litre over the past week. The metropolitan price fell by 2.7 cents to 130.0 cents a litre and the regional price was down by 3.0 cents to 132.4 cents a litre.

• Last week the national average wholesale (terminal gate, TGP) unleaded petrol price was down by 1.4 cents last week to 84.10 cents per litre. Today, the average unleaded TGP stands at 84.1 cents a litre, up 0.5 cents over the week. Last week the national average terminal gate diesel price fell by 3.1 cents to 101.2 cents per litre. Today the terminal gate diesel price stands at 100.7 cents a litre, down 0.5 cents over the week.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 103.5c; Melbourne 109.2c; Brisbane 101.0c; Adelaide 96.8c; Perth 91.0c; Canberra 123.8c; Darwin 124.3c; Hobart 133.8c.

• The key Singapore gasoline price closed yesterday at a 21-year low of US$18.45 a barrel, down US$4.30 a litre or 18.9 per cent on the week. In Australian dollar terms, the Singapore gasoline price fell by $7.76 or 20.7 per cent to $29.71 a barrel or 18.68 cents a litre.

National Australia Bank Business Survey – March

• The NAB business confidence index fell from -2.4 points to -65.6 points in March – the weakest result on record. (The long-term average is +5.5 points). And the business conditions index fell from +0.2 points to -21.1 points – the largest decline on record. (The long-term average is +5.6 points). The survey was conducted in the period March 25-April 1, 2020 across 500 firms.

• The rolling annual average business confidence index fell from +0.7 points to -5.1 points. The rolling annual average business conditions index eased from +3.1 points to +0.5 points.

• Key Components: The index of trading conditions fell from +3.9 points to -18.7 points; employment fell from +0.9 points to -19.7 points; profitability fell from +4.8 points to -26.7 points; forward orders fell from -4.1 points to -28.6 points; stocks fell from -5.2 points to -8.4 points; exporter sales fell from -9.2 points to -23.3 points.

• Inflationary indicators show slightly weak price and wage pressures: The monthly reading of labour costs fell at a 0.9 per cent quarterly rate in March after a 0.8 per cent rise in February. Purchase costs rose at a 0.5 per cent quarterly rate (previous month +0.9 per cent). Final product prices fell at a 0.2 per cent quarterly rate (previous month +0.3 per cent). Retail prices rose at a 0.6 per cent quarterly rate (previous month +0.6 per cent).

• Capacity utilisation fell from 81.2 per cent to 75 per cent, (81.1 per cent is the long-term average).

• The proportion of firms reporting that they did not require credit rose from 40 per cent to 50 per cent.

• NAB reported: “All industries saw a sharp decline in conditions in the month with the exception of wholesale (up 17pts) and construction (which declined by a modest 3pts). Recreation & personal saw the largest decline followed by mining and finance, business and property services. With the exception of wholesale, all industries report negative conditions”.

• “Confidence decline sharply across all industries in the month. Construction declined by almost 80pts with the bulk of the other industries falling by 60-70pts in the month. In trend terms, all industries are now in deep negative territory.”

• “Conditions fell between 18 – 25pts across the states. All states now lie in negative territory. Each state saw a sharp fall in confidence, with the declines led by WA and SA. Tasmania saw the smallest (but still large) decline across the states.”

Credit and debit card lending – February

• The average credit/charge card balance was $3,343.80 in February and the average limit was $9,766.34. A series break in September prevents getting accurate growth estimates. But the average credit balance has been falling for some time.

• The number of credit and charge card purchases rose by 1.2 per cent in February after rising 0.3 per cent in January (up 5.3 per cent annual).

• The value of purchases made with credit and charge cards fell by 0.3 per cent in February to be up 2.4 per cent on a year ago. Overseas purchases were down 0.3 per cent on the year and the value of domestic purchases was up 2.7 per cent on the year. (Overseas purchases represented 5.9 per cent of all purchases – a near 4-year low).

• The value of debit card purchases rose by 0.4 per cent in February to be up 9.4 per cent on the year.

• By value, the sum of credit & debit card purchases rose by 0.1 per cent in February. Card purchases were up 5.9 cent on the year. Smoothed annual growth (12-month average) was steady at 6.4 per cent in February. The growth rate appears bottomed at 5.7 per cent in October after falling from 7.5 per cent over the previous 18 months.

• The number of credit and charge card accounts stood at a 9-year low in February, down from 14.65 million to 14.62 million.

• The number of debit card accounts rose 0.2 per cent to 39.63 million in February. Accounts are up 3.9 per cent on the year.

What is the importance of the economic data?

• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

• The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

• The monthly National Australia Bank business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.

What are the implications for investors?

• It is all about COVID-19. If the encouraging news on the success of containment measures continues in Australia, then business confidence will lift in the next few months. But clearly ‘normal’ businesses conditions are still some way away.

• Petrol retailers are holding on to a little more gross margin given the collapse of demand for fuel by motorists. But motorists are also reaping the gains from lower global oil prices. A degree of understanding is necessary in these difficult times. When the economy eventually gets back to ‘normal’ we want to see plenty of petrol retailers around to ensure the market remains competitive. And the gross retail margin will need to fall around 9 cents a litre to more ‘normal’ levels.

Published by Craig James, Chief Economist, CommSec