Fastest growth of credit card debt in a decadeConsumers prefer to spend rather than saveCredit & debit cards; Consumer sentiment
Credit card debt: The average credit card balance fell by $54.60 to $3,223.70 in July, down from five-year highs of $3,278.30 in June. But balances were up by 5 per cent over the year – the strongest annual growth rate in a decade. In smoothed terms (12 month average) the average balance was up by 1.3 per cent – the strongest annual growth rate in six years.
Consumer confidence: The Westpac/Melbourne Institute survey of consumer sentiment index fell by 3 per cent to 100.5 in September – the lowest level in ten months. The index is below its long-term average of 101.5. A reading above 100 denotes optimism.
‘Spend it’: In the latest quarterly survey 7.2 per cent of respondents thought the ‘wisest use of savings’ was to ‘spend it’ – the second highest survey response in seven years.
Unemployment expectations: Unemployment expectations fell by 6.6 per cent to near seven-year lows of 120.7 to be 9.6 per cent lower than a year ago in September.
What does it all mean?
Consumer confidence is moderating, but that doesn’t mean that Aussies have stopped spending. In fact, the annual growth rate of average credit card balances is the highest since April 2008. And over seven per cent of survey respondents in the September consumer confidence survey said that they’d prefer to spend rather than save – the second highest growth rate in seven years. Unsurprisingly this coincides with surveyed unemployment expectations being near seven-year lows and the overall national savings rate being the lowest in over a decade.
Aussie consumer confidence was at 4½-year highs only a few months ago. Economic fundamentals have improved. Annual economic growth is the best in six years. Over the year to June, GDP growth was 3.4 per cent, driven by household consumption, which grew by a healthy 3 per cent. And the unemployment rate has declined to near six-year lows of 5.3 per cent in July. Australia’s export income from our largest trading partner, China, is at record highs and trade surpluses have been posted in 12 out of the past 15 months. Business conditions are near record highs. The Reserve Bank’s official cash rate has been anchored at record lows of 1.5 per cent for over two years and inflation is only around two per cent on the back of retail deflation.
So why are Aussie consumers less chipper? The Liberal Party has elected a new Prime Minister, Scott Morrison. Political instability and uncertainty are never positive for consumer or business confidence. Wages growth has bottomed, but is still low relative toa decade ago.
And the ‘wealth’ effect has come into sharper focus for households. The housing market continues to rebalance. But annual home price growth in Sydney is at nine-year lows. Major banks have begun lifting mortgage rates. The Aussie dollar has weakened against the greenback to over two-year lows making overseas-sourced consumer  goods and holidays more expensive. Petrol prices are back over $1.50 a litre, near four-year highs in some regions. The drought is hurting farmers on the East Coast. And the Aussie sharemarket has traded down by over three percent since reaching fresh 10½-year highs on August 29 on emerging market and trade concerns. Still, the number of surveyed optimists has exceeded the number of pessimists for ten consecutive months.
What do the figures show?Consumer confidence
The Westpac/Melbourne Institute survey of consumer sentiment index fell by 3 per cent to 100.5 – the lowest level in ten months. The index is below its long-term average of 101.5. A reading above 100 denotes optimism. The survey was conducted from September 3-7.
The current conditions index fell by 2.8 per cent and the expectations index fell by 3.2 per cent in September.
All five of the components of the index fell in September:
• The estimate of family finances compared with a year ago fell by 3.6 per cent;
• The estimate of family finances over the next year also fell by 3.6 per cent;
• Economic conditions over the next 12 months fell by 0.1 per cent;
• Economic conditions over the next 5 years fell by 5.8 per cent;
• The measure on whether it was a good time to buy a major household item fell by 2.2 per cent.
Housing outlook: A good time to buy a dwelling? The index fell by 4.8 per cent, but is up 8.7 per cent on the year. House price expectations fell by 3 per cent and is down by 22.9 per cent on a year ago.
Unemployment expectations: Unemployment expectations fell by 6.6 per cent to 120.7 (near 7-year lows) and is down by 9.6 per cent over the year.
Wisest place for savings: On the question of the ‘wisest place for savings’, banks (29.5 per cent) led the way from paying down debt (20.4 per cent). Only 11.6 per cent of respondents selected real estate and 7.6 per cent nominated shares. The proportion of consumers opting to put money in superannuation was 5.5 per cent. But 7.2 per cent of people said they would prefer to spend any extra savings – the second highest level in over seven years.
Credit & debit card lending:
The average credit card balance fell by $54.60 to $3,223.70 in July, down from five-year highs of $3,278.30 in June. But balances were up by 5 per cent over the year – the strongest annual growth rate in a decade. In smoothed terms (12 month average) the average balance was up by 1.7 per cent – the strongest annual growth rate in 6½ years.
Of credit cards attracting interest charges, the average outstanding balance fell by $30.40 in July to $2,034.60. The average balance accruing interest was up by 5.0 per cent on a year ago – the strongest annual growth rate in ten years. In smoothed terms (12 month average) the average balance was up by 1.3 per cent on a year ago – the first increase in six years.
The average credit card limit fell by $1.10 to $9,481.70 in July to be up 4.3 per cent over the year.
Usage of credit card limits stood at 34.0 per cent in July.
The number of credit card accounts stood at 16.024 million in July, down by 4.2 per cent over the year.
The number of debit card accounts stood at 36.950 million in July.
The number of ATM transactions in July was down by 1.5 per cent over the year. Transactions have been consistently falling in annual terms for over six years.
The number of debit card purchases in July were 17.7 per cent higher than a year ago with the value up by 14.3 per cent.
In July 15.3 transactions per account were made on credit cards (on average) with 14.3 transactions per account made on debit cards.
In June 2018, there were a record 961,247 EFTPOS terminals, up by 3.2 per cent over the year. Terminals have doubled since 2004.
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 sixweekly 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?
The same themes continues to play-out for Aussie consumers at the moment. Job security is improving on the back of solid employment growth. In response, most of us continue to spend our hard-earned coin, rather than save, supported by continued low prices of everyday goods, like clothing and footwear.
And while consumers would like bigger pay rises, wages are still outpacing prices in most regions, underpinning spending. The lower wages bill is encouraging businesses to boost employment. As seen in the US, UK and Europe in the past week, wages growth will pick up eventually Down Under as the labour market tightens.
That said, political noise, rising mortgage rates, elevated petrol pump prices, falling home prices in the two largest cities and recent sharemarket volatility is weighing on household perceptions of their finances and views of the economy.
In truth, the Aussie economy is in good shape. And if you bought a house in Sydney and Melbourne five years ago, your house price is still up by 50 per cent.
The Aussie sharemarket is still trading around decade highs, despite an unwillingness by households to put their savings to work in shares. Banks still remain the preferred location to hoard cash with allocations to real estate, building societies, shares and bonds all falling during the September quarter.
CommSec doesn’t expect a change in official interest rates until at least November 2019.
Published by Ryan Felsman, Senior Economist, CommSec