Consumer inflation expectations hit 33-month high.

Consumer inflation expectations hit 33-month high

Record-breaking canola crop; Services jobs expand

Consumer confidence; RBA card lending; Services sector activity; ABARES report

• What happened? The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.8 per cent to the neutral 100 level (long-run average 112.5 since 1990). Sentiment dropped 5.3 per cent in Sydney and fell by 0.8 per cent in Melbourne. Consumer inflation expectations over the next 2 years hit a 33-month high of 4.7 per cent last week.

• The Reserve Bank released payment system data for July. Credit cards continue to fall from favour together with ATM use. But debit card use is growing and cheques continue to be used.

• The AiGroup Performance of Services Index (PSI) fell from 51.7 to an 11-month low of 45.6 in August, denoting a contraction in activity (index below 50). But the services employment sub-index lifted from 51 to 53.4 in August.

• The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) today released a report estimating that the national winter crop harvest is expected to reach 54.8 million tonnes in 2021/22, up 17 per cent from its June forecast. A record canola crop of 5.037 million tonnes is expected in 2021/22, up 20 per cent.

• Implications: The S&P/ASX 200 consumer staples sector is up 9.7 per cent year-to-date with the 6.5 per cent gain in August being the third best of all sectors. But consumer staples shares are down 2.6 per cent so far in September as investors take profits. Grocery giants Woolworths and Coles have both recently warned that Delta virus outbreaks in Sydney and Melbourne are putting a lot of pressure on their supply chains.

The consumer confidence and household spending and credit card data have implications for retailers, and other consumer-focussed businesses.

What does it mean?

• Consumer confidence, as measured by ANZ and Roy Morgan, remains resilient as Australia continues its ongoing battle to contain the fast-spreading Covid-19 Delta variant, while increasing vaccination rates. The sentiment index eased by 1.8 per cent last week to the neutral level of 100, which separates optimists from the pessimists.

• Record Covid-19 case numbers and the prolonged lockdown weighed on morale in Sydney. Sentiment dropped by 5.3 per cent last week. Consumer confidence in Melbourne (down 0.8 per cent) is steadily being eroded by building Delta case numbers. And sentiment in Brisbane fell by a surprising 2.9 per cent, despite recent success in supressing the virus. Elsewhere, confidence in “Covid-free” Adelaide (up 5.0 per cent) and Perth (up 2.3 per cent) both lifted.

• Notably, consumer concerns about the rising cost of living resurfaced, with the ANZ/Roy Morgan measure of consumer inflation expectations over the next two years hitting a 33-month high of 4.7 per cent last week. Elevated petrol and food prices, along with elevated utilities bills and annual insurance price hikes are worrying households at a time when hours worked are being lost due to lockdowns.

• Data from the Australian Industry Group (AiGroup) today shows that the services sector contracted for the first time in 11 months in August due to government restrictions in Sydney and Melbourne. Of course, the retail, hospitality and the logistics sectors have been hardest hit by Delta lockdowns. That said, AiGroup economists reported that the employment sub-index astonishingly lifted from 51 to 53.4 points in August. Aussie businesses appear keen to hold on to workers, given labour shortages and expectations for an economic re-opening in NSW and Victoria in the coming months.

• The Reserve Bank released payment system data for July. Credit cards continue to fall from favour together with ATM use. But cheques continue to be used – especially for high-value transactions. And debit card use continues to grow. The Reserve Bank recently said Australia’s payments system continues to change with an increasing focus on ‘buy-now-pay-later’ transactions.

• The S&P/ASX 200 consumer staples sector is up 9.7 per cent so far in 2021 with the 6.5 per cent gain in August being the third best of all sectors. But consumer staples shares are down 2.6 per cent so far in September as investors take profits. While grocery giants Woolworths and Coles have both been lockdown beneficiaries, the companies have warned recently that Delta virus outbreaks in Sydney and Melbourne are putting a lot of pressure on their supply chains amid labour shortages and a surge in online delivery demand. Of course, investors will want to know whether Australia’s largest supermarket chains can continue their strong earnings and sales growth rates once lockdowns eventually ease.

• The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) today released a report estimating that the national winter crop harvest is expected to reach 54.775 million tonnes in 2021/22, up 17 per cent from its June forecast.

• A record canola crop of 5.037 million tonnes is expected in 2021/22, up 20 per cent from the June forecast, as rainfall boosts growing conditions. The global canola market has seen tighter balances with prices hovering near record highs as drought withered the crop in Canada, the world’s largest producer.

• ABARES also increased its wheat estimates by 17 per cent to 32.633 million tonnes and barley forecasts by 20 per cent to 12.477 million tonnes from June. ABARES said that abundant spring rainfall along the east coast and in South Australia will further boost the winter crop towards the end of the season.

What do you need to know?

Consumer sentiment – Week ended September 5

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.8 per cent to 100 (long-run average since 1990 is 112.5). Four out of the five major sub-components fell last week.

Reserve Bank credit cards, debit cards, ATMs, cheques – July

• There are 13.3 million credit & charge card accounts in July – the lowest number in 14½ years.

• There are 17.8 million cards attached to those credit card accounts.

• The average credit card purchase is $104.

• The average credit card balance is $2,715 –the lowest level in 15 years.

• Credit card customers utilise on average 28 per cent of their limits, just off record lows.

• There are 35.6 million debit card accounts, up 3.4 per cent on a year ago.

• There are 41.3 million debit cards attached to those debit card accounts.

• The average debit card purchase is $49.

• There were 26.9 million ATM withdrawals in July, totalling $7.5 billion, a 15-month low.

• The average ATM withdrawal in July was $279 – an 11-month high.

• In July, 2.6 million cheques were drawn totalling $32.4 billion (average $12,427 – a 3-year high).

• There were 10.89 million stored value (prepaid) cards in July, totalling $858 million (average $79).

AiGroup Performance of Services index – August

• The AiGroup Performance of Services Index fell from 51.7 to an 11-month low of 45.6 in August. Readings below 50 denote a contraction in activity. The decline was driven by sales (-13.2 points to 40) and new orders (-9.3 points to 47.4), with employment (+2.4 points to 53.4) proving more resilient. Capacity utilisation was little changed (-0.1 percentage points to 80.4 per cent). Measures of prices moderated, including for input prices (-2.6 points to 71.5), selling prices (-11.4 points to 55.3) and average wages (-5.0 points to 63).

• The AiG noted, “The epicentre of the downturn was in the retail trade and hospitality sector with the logistics sector also going backwards in August. Business and property services and personal, recreational & other services managed to hold onto recent gains.”

Published by Ryan Felsman, Senior Economist, CommSec