Record housing wealth; Record meat exports

Consumer views on future finances hit 15-week high

Consumer confidence; CBA Credit Card & Household Spending; Home prices; Farm exports

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.5 per cent – the 10th lift in 11 weeks – to 97.5 points (long-run average since 1990 is 112.9). Sentiment is up by 49.3 per cent since hitting record lows of 65.3 points on March 29 (lowest since 1973). Consumer views on family finances over the next year (‘future finances’) rose by 1.4 per cent to 15-week highs of 21.7 points.

Commonwealth Bank (CBA) card spending: According to the Commonwealth Bank (CBA), card spending in the week to June 12 was up 6.2 per cent on a year ago, compared to a 5.2 per cent lift for the week ended June 5. Online spending rose 7.9 per cent (previous week: +8.5 per cent) and in-store spending was up 5.9 per cent (previous week: +3.9 per cent) over the period.

CBA Household Spending Intentions (HSI, May): According to the CBA Group economists, “We are seeing some big changes taking place in household spending that provide early signs of stabilisation and recovery in some parts of the Australian economy, largely driven by changes in government policy.”

Home prices: The Bureau of Statistics reports that Australian home prices rose by 1.6 per cent in the March quarter to stand 7.4 per cent higher over the year – the strongest annual growth rate in 2½ years. The total value of residential dwellings was at a record high $7,237.1 billion in the March quarter. But the number of established house and attached home transfers in Sydney fell to 15-year lows of 15,846.

Farm exports: The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) today lifted its forecast for Australian farm exports by 9.3 per cent to $47 billion in 2019/20 (from a previously forecast $43 billion in March). Meat and live animal exports for 2019/20 are estimated to hit record highs of $17.5 billion, up by 13.1 per cent from a year ago.

The consumer confidence and credit card spending figures have implications for retailers, and other consumer-focussed businesses. Home price data is important for retailers, especially those focussed on consumer durables.

What does it all mean?

• Good news for Aussie farmers. Despite challenges presented by the pandemic, farm production and exports are forecast by the Bureau of Agricultural and Resource Economics and Sciences (ABARES) to rebound from one of the worst droughts in the past 100 years due to better rainfall in eastern Australia. And meat and live animal exports are expected to hit record highs of $17.5 billion in financial year 2019/20.

• Data from the Bureau of Statistics (ABS) shows the Aussie capital city home prices were already moderating before the COVID-19 economic lockdown and social distancing measures were fully enforced. In fact, home prices grew by just 1.6 per cent in the March quarter – the slowest quarterly rate since June 2019. And the number of transfers of established houses and attached dwellings in Sydney fell to 15-year lows. That said, housing wealth hit record highs at the end of March.

• The consumer backdrop continues to brighten. Consumer views on family finances over the next year (‘future finances’) rose to 15-week highs last week – levels last seen before the height of the pandemic outbreak in early March.

• Commonwealth Bank (CBA) Group economists continue to highlight the improvement in household spending intentions with “Data up to the end of May 2020 showed retail spending intentions jumped higher on the month, consistent with our CBA credit and debit card spending data. Improvement was also seen in entertainment spending intentions. After big falls in April, spending intentions stabilised for home buying and travel. Health and fitness spending intentions also stabilised after recent gains, while some weakness was evident for education spending intentions and motor vehicle spending intentions.”

What do the figures show?

Consumer sentiment – Week ended June 14

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.5 per cent – the 10th lift in 11 weeks – to 97.5 points (long-run average since 1990 is 112.9). Sentiment is up by 49.3 per cent since hitting record lows of 65.3 points on March 29 (lowest since 1973).

• Four of the five major components of the index rose last week:

The Commonwealth Bank (CBA) credit card data – Week ended June 12

• CBA card spending in the week to June 12 was up 6.2 per cent on a year ago, compared to a 5.2 per cent lift for the week ended June 5. Online spending rose 7.9 per cent (previous week: +8.5 per cent) and in-store spending was up 5.9 per cent (previous week: +3.9 per cent) over the period. According to CBA Group economists, “CBA credit & debit card spend indicates that expenditure continues to pick up modestly as the economy reopens.”

By category:

“Spending on food goods (primarily at supermarkets) has plateaued at an elevated level. Spending on food services has picked up as restrictions around eating out have been eased.”

“Spending on alcohol services (e.g. drinking at hotels, pubs and clubs) is still well down on year ago levels. But the trend has improved as restrictions have been eased.”

“Spending on household furnishings & equipment remains at elevated levels. The spending pulse on transport and recreation has improved, but the level is still well down in annual terms.”

“Spending on personal care has accelerated very quickly over the past month from very low levels. Medical spend is also on an improving trend.”

By region:

“The states with the highest exposures to the services sectors have had the biggest drag on expenditure from the COVID-19 induced shutdowns.”

“Many of the ‘smaller’ states have seen growth in card spend return to pre-COVID-19 levels (note that a shift from cash to card spend flatters the annual growth rates).”

The Commonwealth Bank (CBA) Household Spending Intentions Series (HSI): May

• On home buying intentions: “Home buying spending intentions stabilised in May – driven by an increase in mortgage applications as house prices fell. On-line searches related to home buying decreased in previous months.”

• On retail spending intentions: “Retail spending intentions jumped higher in May. This was consistent with the ongoing improvement in spending evident in the CBA credit/debit card spending data. Data to 12 June showed total credit/debit card spending up 6 per cent/yr.”

• On travel spending intentions: “After collapsing in April as international travel was prohibited and inter-state travel was very difficult, Travel spending intentions stabilised in May as parts of the economy re-opened. This was especially the case for intra-state travel.”

• On health & fitness spending intentions: “After considerable strength in April, Health & Fitness spending intentions retreated slightly in May.”

• On entertainment spending: “Entertainment spending intentions improved in May – with the key driver being an improvement in ‘recreation’ spending, including on digital books & games and music stores.”

• On education spending intentions: “Education spending intentions were weak in May, with a rise in correspondence schools not enough to offset weakness across the other education sectors.”

• On motor vehicle purchase intentions: “Spending intentions for Motor Vehicles declined further in May, with the weakness in the labour market, a turn down in house prices and general economy no doubt having an impact.”

Residential property prices – March quarter

• The Bureau of Statistics (ABS) has released its Residential Property Price indexes for the March quarter.

• The price index for residential properties for the weighted average of the eight capital cities rose by 1.6 per cent in the March quarter to be up 7.4 per cent from a year ago – the strongest annual growth rate in 2½ years.

• In the March quarter, capital city residential property price indexes rose most in Hobart (up by 2.4 per cent), followed by Melbourne (up by 2.1 per cent), Sydney (up 1.9 per cent), Darwin (up 0.7 per cent), Brisbane and Perth (both up 0.6 per cent), Adelaide (up 0.4 per cent) and Canberra (up 0.2 per cent).

• Over the year to March, residential property prices rose most in Melbourne (up 10.4 per cent), followed by Sydney (up 10 per cent), Hobart (up by 7 per cent), Canberra (up 3 per cent), Brisbane (up 2.5 per cent) and Adelaide (up 0.9 per cent). But Darwin prices fell most (down 3.1 per cent), followed by Perth (down 0.9 per cent).

• The total value of residential dwellings in Australia was a record high $7,237.1 billion in the March quarter, increasing by $141.6 billion or 2 per cent over the quarter.

• The mean price of residential dwellings rose by $10,700 to $690,200 and the number of residential dwellings rose by 43,700 to 10,485,700 in the March quarter.

• CommSec estimates that the number of people per home was steady, around 2.45 in the March quarter.

• The value of all dwellings in Australia in the March quarter was 8.7 per cent higher than a year ago – the strongest annual growth rate in 2½ years.

• Over the year to March, the value of homes were higher in Victoria (up 12.9 per cent), Tasmania (up 10.5 per cent), NSW (up 9.7 per cent), ACT (up 7.1 per cent), Queensland (up 5.3 per cent), South Australia (up 3.7 per cent) and Western Australia (up 0.7 per cent). But home values were lower in the Northern Territory (down 3.3 per cent).

• The number of homes in Australia rose by 4,300 in the March quarter to be up by 181,900 over the year.

ABARES Agricultural overview: June quarter 2020

• According to ABARES, “While the COVID-19 pandemic has and will continue to present challenges for Australia’s agricultural sector, the recovery from drought dominates the outlook for 2020–21. Farm production is forecast to rebound in 2020–21, after one of the worst droughts in over 100 years (in terms of rainfall). This follows 3 consecutive years of contraction in output. Despite a resurgence in production, the gross value of farm production is forecast to increase by only 1 per cent to $61 billion in 2020–21 as a result of falling prices.”

• “A global recession in the wake of COVID-19 is expected to result in reduced demand and lower world prices for many agricultural commodities in 2020–21. For Australia, this will be compounded by domestic grain prices falling back to export parity – and fodder crop prices falling – as the effects of drought subside. Price falls are expected in most grains, oilseeds, pulses, fibres, fodder and milk. Partially offsetting these falls are modest forecast price rises for red meat, due primarily to African swine fever-induced demand.”

• “In 2019–20 the value of farm exports is expected to exceed $47 billion, 3 per cent lower than in 2018–19. Exports of livestock and livestock products were valued at $26.6 billion in 2019–20, of which exports of meat and live animals contributed over $17 billion, a record high. Crop exports were valued at just over $20 billion, reflecting constrained production because of the drought.”

What is the importance of the economic data?

• 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.

• The focus of the Commonwealth Bank (CBA) Household Spending Intentions Series (HSI) is on Australian households and their spending intentions. The approach is to employ the near real-time spending readings from CBA’s household transactions data, combine them with relevant search information from Google Trends data and map the results to the official data on consumer spending.

• The weekly Commonwealth Bank (CBA) credit & debit card spend data is derived from transaction authorisations to give a near real-time view. This means that cancelled authorisations, refunds, reversals, etc. will not be included. Data has not been adjusted for effects of consumers substituting between cash and card payments. CBA merchant facility spend data is derived from the Merchant Acquiring System which includes net sales from both CBA and Other Financial Institution (OFI) domestic and international cards.

The Australian Bureau of Statistics (ABS) provides quarterly data on residential prices. The figures provide further perspectives on the state of the housing purchase sector.

What are the implications for interest rates and investors?

• The latest weekly payrolls (employment) report for May implies that Australia’s labour market has likely troughed with total payrolls up 1 per cent over the month. While differences in labour market methodology and timing means that further job losses likely occurred in May, it appears that the April nadir – at the height of the economic lockdown – is behind us, providing support for Aussie consumers.

• While uncertainty around the timing of the conclusion of the Government’s JobKeeper wage subsidy is unhelpful for sentiment, both business and consumer confidence are lifting from low levels as optimism around the re-opening of state borders and the economy gains momentum. In fact, ACA Research and Fifth Quadrant’s SME sentiment tracker index – released today (for the period to June 15) – strengthened with 34 per cent of businesses reporting revenues at pre-COVID-19 levels, up from 27 per cent a fortnight ago. Importantly, stronger revenues were reported by the all-important construction, production and retail sectors.

Published by Ryan Felsman, Senior Economist, CommSec