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Record Kiwi tourists; Chinese tourism slumps
Consumer confidence hits 3-month high

Tourism; Consumer sentiment; CBA HSI; Reserve Bank Board minutes

Tourism: Tourist arrivals rose by 0.9 per cent in December, but departures were flat. It was the biggest lift in tourist arrivals in four months. New Zealand tourists hit a record-high of 129,100 in December. China is the largest source of tourists to Australia. Over the past year 1,453,200 tourists came to Australia from China, up by 0.9 per cent on the year earlier – the weakest annual growth rate in 9½ years.

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.2 per cent to 109.1 points – the highest reading since mid-November. But sentiment remains below both the average of 114.1 points held since 2014 and the longer term average of 113.1 points since 1990.

CBA Household Spending Intentions: According to the Commonwealth Bank (CommBank), “The monthly CBA Household Spending Intentions (HSI) series, data to end January, shows that the wide gap between consumer spending intentions and home buying intentions persisted into early 2020.”

Reserve Bank easing bias retained: Minutes of the February 4 Board meeting were released. Board members said, “that it was reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target.”

Tourism data is important for airlines, hotels and booking agents. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The Reserve Bank Board minutes provide guidance on interest rate settings.

What does it all mean?

• The Black Caps played their first Boxing Day cricket test match at the Melbourne Cricket Ground (MCG) since 1987 in December. A record 80,473 spectators attended day one of the test between the Trans-Tasman rivals, bolstering Cricket Australia’s coffers. Of course, an estimated 20,000 ‘Beige Brigade’ supporters made their presence felt both inside and outside the ‘G’, contributing to a record-high (since records began in January 1991) 129,100 Kiwi tourists crossing ‘the Ditch’ during the month.

• Of course, concerns over the impact on Australia’s tourism industry from the novel coronavirus outbreak in China is ‘front of mind’ for tourist operators and their employees. In order to contain the virus, the Australian government has imposed travel restrictions on people that have travelled through China through to February 22. On average, around 125,000 Chinese tourists holiday ‘Down Under’ in both January and February each year – coinciding with the Lunar New Year.

• The drop in temporary visas for education and tourism – representing 0.2 per cent and 0.6 per cent of annual Gross Domestic Product (GDP) respectively – presents a significant downside risk to the Aussie economy. China is Australia’s largest source of tourist and international student income.

• That said, the slowdown in the Chinese economy had already weighed on tourists arrivals in Australia. In fact, the annual growth rate of Chinese tourism slowed to 9½-year lows in December – a headache for Aussie airlines and hotels.

• Aussie consumers have got off the canvas after being knocked down by concerns over the novel coronavirus and bushfire tragedy in early 2020. In fact, sentiment hit 3-month highs last week. The biggest area of improvement has been consumers’ more positive view on their ‘current finances’ – with the sub-index reading of 27.7 points above the long-run average of 24.7 points. The ‘wealth effect’ from rising sharemarkets and property prices – combined with income tax and mortgage relief – are bolstering household balance sheets. But Aussies are also cautiously paying down debt – as indicated by the CommBank’s flat retail spending intentions data in January.

What do the figures show?

Tourism – December

• Tourist arrivals rose by 0.9 per cent in December – the biggest increase in four months. Arrivals are up 2.7 per cent on the year.

• Aussie tourist departures were flat in December, but were up by 3.4 per cent on the year.

• In December, tourists from Greater China (China and Hong Kong) totalled 145,000 (mainland China 118,600; Hong Kong 26,400).

• New Zealand tourists hit a record-high (data goes back to January 1991) of 129,100 in December.

• Mainland China is the largest source of tourists to Australia. Over the past year 1,453,200 tourists came to Australia from China, up by 0.9 per cent on the year earlier – the weakest annual growth rate in 9½ years.

• A record 400,400 Indian tourists travelled to Australia over the year to December, up by 11.9 per cent on a year ago.

• In December, there were record tourist inflows from Canada, New Zealand and Pakistan.

• Over the twelve months to December, tourist arrivals by state (state of longest stay) were: NSW (up 0.3 per cent); Victoria (up 5.5 per cent); Queensland (up 0.9 per cent); South Australia (up 6.1 per cent); Western Australia (up 4.1 per cent); Tasmania (up 7.2 per cent); Northern Territory (up 6.5 per cent); and the ACT (down 0.6 per cent).

• And in the month of December a record number of Aussies travelled to Germany, Indonesia, Italy, Singapore and Spain.

Migration

• In December, there were 61,910 permanent and long-term arrivals in Australia. The annual number of permanent and long-term overseas arrivals fell from 844,960 in November to 843,980 in December, but were up 1.4 per cent over the year.

• In net terms (arrivals less departures) permanent and long-term overseas arrivals fell from 297,040 to 294,310 over the year to December and were below the record high of 353,480 in the year to April 2009.

Consumer sentiment

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.2 per cent to 109.1 points – the highest reading since mid-November. But sentiment remains below both the average of 114.1 points held since 2014 and the longer term average of 113.1 points since 1990. Two of the five major components of the index rose last week:

The estimate of family finances compared with a year ago was up from +6.5 points to +8.6 points;

The estimate of family finances over the next year was down from +27.8 points to +27.7 points;

Economic conditions over the next 12 months was up from -17.9 points to -12.6 points;

Economic conditions over the next 5 years was unchanged at +1.3 points;

The measure of whether it was a good time to buy a major household item was down from +21.4 points to +20.3 points.

• The measure of inflation expectations was unchanged at 3.9 per cent.

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

• On home buying intentions: “Home buying intentions eased back a little in January but the solid uptrends remains intact. HSI readings remain at levels pointing to further gains in dwelling prices, a turn in the residential construction cycle and a positive wealth effect that should help consumer activity.”

• On retail spending intentions: “Retail spending intentions are zig-zagging around an essentially flat trend at present. There are indications that Household preferences are to take the benefit of interest rate cuts and tax rebates and use them to strengthen balance sheets.”

On travel spending intentions: “The January travel HSI readings are the lowest since the series began in 2015. It seems the bushfires and coronavirus are impacting on travel spending intentions.”

• On health & fitness spending intentions: “The downshift in intentions to spend on health & fitness reversed in January.”

• On entertainment spending: “The uptrend in entertainment spending intentions has levelled out. Spending intentions in this segment are still rising. But the levelling out would again be consistent with some negative impact from the fires and virus.”

• On education spending intentions: “Education spending intentions have momentum and turned down in recent months. Along with tourism, the education sector is particularly exposed to the negative effects of the coronavirus.”

• On motor vehicle purchase intentions: “Buying intentions for motor vehicles have turned decisively higher. The improving trend is significant because RBA research has revealed that the form of spending most sensitive to changes in wealth is motor vehicles.”

Reserve Bank February 4 Board meeting minutes

• Decision to leave rates unchanged: “The Board concluded that the cash rate should be held steady at this meeting. Members agreed that it was reasonable to expect that an extended period of low interest rates would be required in Australia to reach full employment and achieve the inflation target. The Board would continue to monitor developments carefully, including in the labour market, and remained prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

• The Reserve Bank “reviewed the case for a further reduction in the cash rate at the present meeting.” On one hand, inflation was below 2 per cent and there was slack in the job market. On the other hand, the Reserve Bank was wary about encouraging more borrowing for housing.

• The Board was also wary about “the risks associated with very low interest rates. Internationally, concerns had been raised about the effect of very low interest rates on resource allocation in the economy and their effect on the confidence of some people in the community, notably those reliant on savings to finance their consumption.”

• The Reserve Bank Board reviewed “policy and academic discussions taking place taking place around the world regarding the operation of macroeconomic policy and monetary policy frameworks in an environment where interest rates are low because of structural factors.

• The Board discussed the US-China trade deal and coronavirus outbreak. On the latter, Board members “observed that it was too early to determine the extent to which growth in China would be affected or the nature of the international spillovers.”

• Bushfires & coronavirus outbreak: “Members noted that the recent bushfires had devastated some regional communities and that this was expected to have reduced GDP growth over the December and March quarters. The effects of the coronavirus outbreak were also expected to subtract from growth in exports over the first half of 2020.”

• Bushfires & coronavirus outbreak: “Overall, economic growth was expected to be weaker in the near term than had been forecast three months earlier, partly because of the effects of the bushfires and the coronavirus outbreak. However, GDP growth was still expected to pick up over the forecast period, supported by accommodative monetary policy, a pick-up in mining investment, and recoveries in dwelling investment and consumption. The recovery from the bushfires was expected to add to growth in the second half of 2020.”

• Consumer sentiment: “Measures of consumer sentiment had declined over recent months, but consumers’ views on their personal financial situation, which historically have had a stronger link to consumption, had been little changed.”

• Wages & prices: “Members noted that the risks around the wage and price inflation forecasts were evenly balanced.”

• Home loans: “Households’ total mortgage payments increased in the December quarter, with a rise in principal and excess payments more than offsetting the decline in interest payments. Members discussed whether this increase reflected a change in behaviour by households and the potential for it to persist.”

What is the importance of the economic data?

• The Australian Bureau of Statistics releases data on overseas arrivals and departures, produced monthly and is an indicator of the health of the tourism sector. The figures are also useful in understanding spending trends and tracking migrant numbers – an indicator with widespread implications for employment, housing and spending.

• 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 Reserve Bank releases minutes of its monthly Board meeting a fortnight after the event. The minutes give a guide to Reserve Bank thinking on interest rate settings.

What are the implications for interest rates and investors?

• The disruption to Australia’s international tourism and education sectors from the coronavirus and bushfires could also extend to weaker domestic consumer spending on travel and study. In fact, in January the CommBank’s travel HSI sub-index hit its lowest level since the series began in 2015. And education spending intentions have also turned lower, despite remaining in positive territory. At this stage, the Federal government has announced a $76 million tourism recovery package to “protect jobs, small businesses and local economies by helping get tourists travelling into bushfire affected regions.”

• The special NAB business survey – issued today – highlighted that “around 80 per cent of respondents report no to little impact (by way of contrast Queensland floods read was 68 per cent)” on their business activity from the catastrophic and tragic summer bushfires. CommBank Group economists expect a reduction of around 0.2 percentage points from March quarter 2020 economic (GDP) growth due to bushfire impacts on activity.

• It was understandable that the Reserve Bank Board left rates unchanged at the February meeting. Simply there was too much going on. Rates were already super-low and stimulating the economy. And the Board was more conscious of the risks of cutting rates further – the impact on confidence levels and the risk of boosting housing debt further.

• Reserve Bank Governor Philip Lowe has become a reluctant rate cutter. While rates could fall further, the Reserve Bank Board wants to be sure that rate cuts would actually work to boost growth, lift employment, wages and growth of prices.

• All-important wages and jobs data are issued later this week.

Published by Ryan Felsman, Senior Economist, CommSec