Glum Consumers; Resilient businesses
Weekly Petrol Prices; NAB survey; Consumer confidence
Petrol prices: According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 5.2 cents to 131.6 cents a litre last week. The metropolitan price fell by 6.7 cents to 127.2 cents a litre and the regional price fell by 2.2 cents to 140.4 cents a litre.
Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 4.2 per cent to 100.4 points – the lowest level since May 25 2014. Sentiment is below both the average of 114.1 points held since 2014 and the longer term average of 113.1 points since 1990.
Business survey: The NAB business confidence index fell from -1.0 points to -3.6 points in February. (The long-term average is +5.8 points). And the business conditions index fell from +2.0 points to +0.4 points. (The long-term average is +5.7 points). To date, 50 per cent of companies responding to its latest NAB survey indicated no impact of the coronavirus.
China inflation: The consumer price index was up 5.2 per cent in the year to February, down from 5.4 per cent in January. Producer prices fell 0.4 per cent in the year (+0.1 per cent in year to January).
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. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
What does it all mean?
• Consumer confidence predictably fell last week despite the Reserve Bank cutting interest rates. Many Australians are actually somewhat fearful about the fact that the cash rate is getting nearer to zero. As has been the case for some time, fiscal stimulus is required, not monetary stimulus. The Reserve Bank has done enough. Fortunately we are drawing closer to an economic stimulus plan being announced. A big injection of dollars in the June quarter would be influential in preventing the Australian economy from falling into recession.
• Aussies are especially worried about the short term outlook for the economy. But overall most consumers believe their finances will stay in good shape. It is important that consumers don’t bunker down in the current environment. A lower petrol price would also be influential in supporting consumer spending.
• In Asian trade today, the Nymex oil price was up US$1.38 or 4.4 per cent to US$32.51 a barrel after falling by US$10.15 on Monday or 24.6 per cent to US$31.13 a barrel.
• Remarkably, NAB reports that 50 per cent of companies responding to its latest survey indicated no impact of the coronavirus.
What do the figures show?
• According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 5.2 cents to 131.6 cents a litre last week. The metropolitan price fell by 6.7 cents to 127.2 cents a litre and the regional price fell by 2.2 cents to 140.4 cents a litre.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down 5.2 cents to 125.4 c/l), Melbourne (down by 6.6 cents to 126.1 c/l), Brisbane (down by 4.9 cents to 125.1 c/l), Adelaide (down by 20.9 cents to 122.5 c/l), Perth (down by 1.4 cents to 132.7 c/l), Darwin (down by 0.4 cents to 136.0 c/l), Canberra (down by 0.5 cents to 144.0 c/l) and Hobart (down by 0.7 cents to 154.0 c/l).
• The smoothed gross retail margin (2-month rolling average) for unleaded petrol fell from 16.26 cents a litre to 15.60 cents (24-month average: 13.2 cents a litre).
• The national average diesel petrol price fell by 1.0 cents to 146.5 cents a litre over the past week. The metropolitan price fell by 1.0 cent to 145.3 cents a litre and the regional price was down by 0.9 cents to 147.5 cents a litre.
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 119.5 cents a litre, down by 4.7 cents over the week. The terminal gate diesel price stands at 121.2 cents a litre, down by 3.6 cents over the past week.
• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 125.8c; Melbourne 122.6c; Brisbane 122.6c; Adelaide 118.2c; Perth 123.9c; Canberra 143.5c; Darwin 135.9c; Hobart 153.5c.
• Before the news of the OPEC+ breakdown, the key Singapore gasoline price closed last week at US$56.40 a barrel, down US40 cents or 0.7 per cent on the week. In Australian dollar terms, the Singapore gasoline price fell by $1.63 or 1.9 per cent to a 13-month low of $85.43 a barrel or 53.73 cents a litre.
• Yesterday the Singapore gasoline price fell to US44.35 a barrel, a fall of 21.4 per cent from Friday. In the past five months the Singapore gasoline price has fallen around 32 cents a litre in Australian dollar terms.
Consumer sentiment – Week ended March 8 2020
• The weekly ANZ-Roy Morgan consumer confidence rating fell by 4.2 per cent to 100.4 points – the lowest level in 5½ years. Sentiment remains below both the average of 114.1 points held since 2014 and the longer term average of 113.1 points since 1990.
• Four of the five major components of the index fell last week:
The estimate of family finances compared with a year ago was down from +8.3 points to +4.0 points;
The estimate of family finances over the next year was down +22.2 points to +17.8 points;
Economic conditions over the next 12 months was down from -25.4 points to -31.4 points;
Economic conditions over the next 5 years was up from +1 point to +2.7 points;
The measure of whether it was a good time to buy a major household item was down from +17.8 points to +9.1 points.
• The measure of inflation expectations was unchanged at 4.1 per cent.
National Australia Bank Business Survey – February
• The NAB business confidence index fell from -1.0 points to -3.6 points in February. (The long-term average is +5.8 points). And the business conditions index fell from +2.0 points to +0.4 points. (The long-term average is +5.7 points). The survey was conducted in the period January 21-February 3, 2020 across 400 firms.
• The rolling annual average business confidence index fell from +1.2 points to 0.7 points. The rolling annual average business conditions index eased from +3.5 points to +3.1 points.
• Key Components: The index of trading conditions fell from +5.1 points to 4.5 points; employment rose from +0.8 points to +1.7 points; profitability fell from +0.9 points to -5.0 points; forward orders fell from -1.0 points to -3.9 points; stocks fell from +0.2 points to -6.1 points; exporter sales fell from -3.0 points to -8.6 points.
• Inflationary indicators show slightly higher price and wage pressures: The monthly reading of labour costs rose at a 0.9 per cent quarterly rate in February after a similar rise in January. Purchase costs rose at a 0.8 per cent quarterly rate (previously +0.6 per cent). Final product prices rose at a 0.3 per cent quarterly rate (previously +0.4 per cent). Retail prices rose at a 0.6 per cent quarterly rate (previously +0.3 per cent).
• Capacity utilisation fell from 81.3 per cent to 81.1 per cent, in line the long-term average.
• The proportion of firms reporting that they did not require credit fell from 50 per cent to 40 per cent.
• NAB reported: “Both confidence and conditions declined this month (after a period of stabilisation in conditions), though it appears too early to fully quantify the effect of the coronavirus with around 50% of firms reporting no impact to date”.
• “All industries saw a decline in conditions in the month, except for retail (which surprisingly improved) and wholesale. Transport & utilities which has been volatile in recent months saw a sharp decline. In trend terms, conditions remain most favourable in the services sector and construction, and weakest in retail, wholesale and manufacturing.”
• “Conditions were generally softer, except for WA and Vic which rose in the month. In trend terms, conditions remain best in Tas and weakest in WA. The other states remain clustered in the 1-3 index point range.”
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 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.
• Chinese inflation data is released monthly and can provide insights into the economic health of Australia’s largest trading partner. The data has implications for currencies and exporters.
What are the implications for interest rates and investors?
• If sharemarkets settle and the Federal Government announces a credible fiscal stimulus then the Reserve Bank Board can stay on the interest rate sidelines at the April meeting.
• At present, half of Australian businesses are reporting no impact from the COVID-19 coronavirus. Presumably of those businesses that are affected, some are seeing strong conditions (consumer staples) and some are adversely affected such as travel-dependent businesses and the education sector.
• It wasn’t surprising to see consumer and business confidence falling in the past week. Arguably the results could have been worse. But the good economic growth figures confirm that the economy was in good shape ahead of the COVID-19 crisis.
• The petrol price has fallen 16.7 cents a litre in the past three weeks – the biggest equivalent week decline in 15 months. The wholesale (terminal gate) price stands at 119.5 cents a litre – lowest since February 2019.
• Over the past seven weeks the average monthly petrol bill for Aussie families has fallen by $37 – equivalent to a quarter cent rate cut on a $250,000 mortgage. Petrol prices are set to fall further, meaning good news for retailers.
Published by Craig James, Chief Economist, CommSec