Millennials consumer confidence hits 2½-year low
ATM withdrawals hit 8-year lows

Consumer confidence; Credit/debit cards; NZ interest rates

Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment index rose by 2.3 per cent to 95.5 points in February. But consumer sentiment is still below the longer term average of 101.4 points. A reading below 100 points denotes pessimism.

Miserable Millennials: The Westpac/Melbourne Institute survey of consumer sentiment includes a breakdown by age group. Sentiment for 18-24 year olds fell by 5.2 per cent in February to be down by 11.6 per cent on the year. And confidence for 25-44 year olds fell by 5.5 per cent to be down 9.3 per cent from a year ago. Sentiment for 18-24 year olds is at 21-month lows and 2½-year lows for 25-44 year olds.

Card purchases: The value of purchases made with credit and charge cards rose by 0.1 per cent in December to be up 3.7 per cent on a year ago. And the value of debit card purchases rose by 3.1 per cent in December to be up 13.7 per cent on the year. The annual average of ATM (Automatic Teller Machine) withdrawals hit fresh 8-year lows in December at 45.88 million.

Reserve Bank of New Zealand (RBNZ) decision: The Reserve Bank of New Zealand (‘RBNZ’) has held the official cash rate at a record low of 1.00 per cent at its meeting today – as expected by most economists.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. Credit and debit card data is important for the retail and financial sectors. Changes in New Zealand monetary policy settings can affect the Aussie dollar.

What does it all mean?

• The ‘smashed avocado’ generation aren’t happy. In fact, Millennial consumers (aged 25-44 years) are the most pessimistic in 2½ years. So why the disillusionment? Altered aspirations around housing affordability could be a key factor. In fact, Aussie consumers’ house price expectations rose to the highest level since March 2017, up by a staggering 73 per cent from a year ago in February. The impact on first home buyer loan demand – currently representing a very healthy 30 per cent of all owner occupier commitments (excluding refinancing) in December – will be something to watch as home prices continue to surge in the big cities.

• Of course, concerns around climate change could be weighing on younger Aussies. Sentiment amongst Generation Z (aged 18-24 years) hit 21-month lows in February. The bushfire crisis and now flooding is likely to be ‘front of mind’ with climate and the environment the top concern (29 per cent of respondents) of Millennials and Generation Z’s in the 2019 Deloitte Global Millennial Survey.

• Aussies are using ATMs (Automatic Teller Machines) less and less. And paying by personal cheque is certainly a thing of the past. Consumer habits continue to evolve with the convenience of ‘Tap-and-Go’ debit card and Apple Pay smartphone payments increasingly preferred by younger Aussies to cash. And ‘buy now, pay later’ options offer younger shoppers greater flexibility around payment plans.

What do the figures show?

Consumer confidence – February

• The Westpac/Melbourne Institute survey of consumer sentiment index rose by 2.3 per cent to 95.5 points in February. But consumer sentiment is still below the longer term average of 101.4 points. A reading below 100 points denotes pessimism.

• The current conditions index rose by 1.2 per cent. And the expectations index lifted by 3.1 per cent.

• Four of the five components of the index rose in February:

The estimate of family finances compared with a year ago fell by 1.0 per cent to 81.2 points;

The estimate of family finances over the next year rose by 0.1 per cent to 99.1 points;

Economic conditions over the next 12 months rose by 5.4 per cent to 89.3 points;

Economic conditions over the next 5 years rose by 4.3 per cent to 91.6 points;

The measure on whether it was a good time to buy a major household item rose by 2.7 per cent to 116.4 points.

• Housing outlook: A good time to buy a dwelling? The index fell by 5.6 per cent to 112.1 points to be down by 0.5 per cent on the year. House price expectations rose by 0.2 per cent to 151.7 points to be up by 72.8 per cent on a year ago.

• Unemployment expectations rose by 0.6 per cent to 134.7 points (implying a slightly weaker job market).

Credit and debit card lending – December

• The average credit/charge card balance was $3,383.96 in December and the average limit was $9,847.81. 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 fell by 0.9 per cent in December after rising 0.8 per cent in November (up 4.9 per cent annual).

• The value of purchases made with credit and charge cards rose by 0.1 per cent in December to be up 3.7 per cent on a year ago. Overseas purchases were up 6.9 per cent on the year and the value of domestic purchases was up 4.1 per cent on the year. (Overseas purchases represented 6.25 per cent of all purchases – a 13 month high).

• The value of debit card purchases rose by 3.1 per cent in December to be up 13.7 per cent on the year.

• By value, the sum of credit & debit card purchases rose by 1.6 per cent in December – the second strongest gain in 18 months behind the 1.7 per cent lift in September. Card purchases were up 9.0 cent on the year. Smoothed annual growth (12-month average) rose from 5.8 per cent to 6.1 per cent in December. The growth rate appears to have bottomed after falling from 7.5 per cent over the past 18 months.

• The number of credit and charge card accounts stood at a 9-year low in December, down from 14.72 million to 14.66 million.

• The number of debit card accounts rose 0.4 per cent to 39.37 million in December. Accounts are up 4.7 per cent on the year.

• There were 10.48 million prepaid cards in December, up 5.4 per cent on a year ago. The stored value on prepaid cards was up by 2.9 per cent on a year ago.

• The number of ATM transactions continues to fall. The annual average of ATM withdrawals hit fresh 8-year lows in December at 45.88 million.

Reserve Bank of New Zealand interest rate decision

• The Reserve Bank of New Zealand (‘RBNZ’) has held the official cash rate at a record low of 1.00 per cent at its meeting today – as expected by most economists.

• The RBNZ Monetary Policy Committee said, “We assume the overall economic impact of the coronavirus outbreak in New Zealand will be of short duration, with most of the impacts in the first half of 2020.”

What is the importance of the economic data?

• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.

• 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.

What are the implications for interest rates and investors?

• Consumers remain cautious. Negative newsflow around the bushfires, floods and Novel Coronavirus are adding to long-standing worries about the economy, household finances and job security. The Aussie dollar hit 11-year lows this week – perhaps weighing on overseas travel plans.

• But the outlook for the housing market is a positive for existing home owners with consumers expecting property prices to rise further in the months ahead. The hope is that rising home prices can boost wealth levels, confidence and borrowing capacity and, in turn, boost spending – especially on ‘big ticket’ items like furniture and cars. And the more-timely ANZ-Roy Morgan weekly consumer sentiment index suggests so. In fact, the index has barely moved in the past 10 weeks to February 9 2020 – lifting by just 1 point to 107.8 points since November 24 2019.

• Commentary on the impact of the coronavirus epidemic from antipodean central bankers couldn’t have been more different today. ‘Across the ditch’ the Reserve Bank of New Zealand signalled that it may be done cutting interest rates with “[New Zealand] economic growth is expected to accelerate over the second half of 2020 driven by monetary and fiscal stimulus, and the high terms of trade.”

• But the Reserve Bank’s Head of Economic Analysis, Dr. Alexandra Heath wasn’t so optimistic about the Aussie economic outlook. Dr. Heath said that the coronavirus impact on China’s demand for Aussie resources, services (tourism and education) and agricultural produce is a “serious downside risk.” And, “I don’t think we can say that it is just a quarterly shock that then everything goes back to normal”, added Dr. Heath. The Reserve Bank’s newly minted economic forecasts could be revised lower as “we [Reserve Bank] haven’t really taken into account that China sits in the middle of a lot of supply chains”, said Dr. Heath.

• The New Zealand dollar (NZD) lifted by around 0.9 per cent to near US64.50 cents immediately after the RBNZ left interest rates on hold. In bad news for Aussies contemplating a holiday across the Tasman, the Kiwi ‘parity party’ could be on the cards again with the NZD trading around 1.04 in value against the Aussie dollar. The Kiwi official cash rate is a quarter per cent above the Aussie benchmark rate.

Published by Ryan Felsman, Senior Economist, CommSec