Tourism slump; Mixed signals from consumers
Consumer confidence; Dwelling starts; Tourism

The weekly ANZ-Roy Morgan consumer confidence rating rose by 8.8 per cent to 78.2 points. Sentiment has lifted by 18.9 per cent since hitting record lows (lowest since 1973) of 65.3 points on March 29.

The Westpac/Melbourne Institute survey of consumer sentiment index fell by 17.7 per cent in April – the biggest monthly fall on record (47 years) – with the index at a 29-year low of 75.6 points. A reading below 100 points denotes pessimism.

Tourism: Tourist arrivals fell by 12.5 per cent in February – the biggest monthly decline on record (data going back to February 1991). Aussie tourist departures fell by 2.9 per cent – the biggest monthly fall in 2 years – but were up 0.8 per cent over the year.

New dwelling starts: The number of dwelling starts rose by 1.2 per cent in the December quarter.

Work yet to be done: Total building and engineering work yet to be done stood at $137.9 billion at the end of 2019, down 2.3 per cent on the year.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. Building & building material companies are affected by dwelling starts including Boral, James Hardie, Adelaide Brighton, Lend Lease, CIMIC, Dulux and Brickworks. Tourism data is important for airlines, hotels, shops and transport operators.

What does it all mean?

• The Aussie economy has been brought to a near standstill, unemployment is lifting and consumer spending is falling in the “Great Lockdown”. But the Federal government’s efforts to contain the impact of the coronavirus outbreak – through its gargantuan $130 billion wage subsidy program and a ‘flattening of the virus curve’ – has seemingly put a floor under the consumer confidence for now. In fact, the near 19 per cent lift in confidence from record low levels in recent weeks has also coincided with rebounds in the Aussie sharemarket and dollar.

• Risk sentiment has improved on investor hopes that the world has seen the worst of the pandemic. The S&P/ASX200 index has lifted by 21 per cent since its March 23 low and the Aussie dollar has risen by 16.5 per cent against the greenback after hitting 17-year lows of US55.10 cents on March 19.

• That said, the actual readings from both consumer confidence gauges are consistent with recessions of the past. In fact, consumer confidence fell to a 29-year low this month. And it appears that Aussies are in for a torrid time on the jobs front. According to the Westpac survey, 7 per cent of respondents reported losing their jobs in April with 14 per cent forced to stand down without pay.

• The national jobless rate for March – due out tomorrow – is expected to make sobering reading with possibly 30,000 Aussies losing their jobs. But that’s just the beginning. History suggests it takes a long time to get unemployment rates back down. Let’s hope that this time is different given the massive size of the Federal Government’s stimulus.

• The latest data confirms the tourist slump in February. The March figures will understandably be even weaker. And recovery in the tourism sector will likely be slow. There is scope for more Government assistance.

What do the figures show?

Tourism – February

• Tourist arrivals fell by 12.5 per cent in February – the biggest monthly decline on record (data going back to February 1991). Arrivals are down by 18.7 per cent on the year – the biggest annual fall on record.

• Aussie tourist departures fell by 2.9 per cent – the biggest monthly fall in 2 years – but were up 0.8 per cent over the year.

• In February, tourists from Greater China (China and Hong Kong) totalled 45,500 (mainland China 19,500; Hong Kong 26,000). Mainland Chinese tourist numbers were the weakest in 16 years.

• Over the past year 1,318,300 tourists came to Australia from China, down by 9.3 per cent on the year earlier – the biggest annual decline on record (data going back to January 1993).

• New Zealand is the largest source of tourists to Australia. Over the past year, 1,428,400 Kiwi tourists flew across the Tasman Sea, up by 2 per cent on the year earlier.

• A record 403,900 Indian tourists travelled to Australia over the year to February, up by 11 per cent on a year ago.

• Over the twelve months to February, tourist arrivals by state (state of longest stay) were: NSW (down 3 per cent); Victoria (up 1.5 per cent); Queensland (down 1.2 per cent); South Australia (up 3.2 per cent); Western Australia (up 5 per cent); Tasmania (up 3 per cent); Northern Territory (up 6.2 per cent); and the ACT (down 6.8 per cent).

• And in the month of February a record number of Aussies travelled to Greece.

Migration

• In February, there were 97,840 permanent and long-term arrivals in Australia – the most in 12 months. The annual number of permanent and long-term overseas arrivals fell from 843,340 in January to 16-month lows of 826,080 in February to down 2.2 per cent over the year – the weakest annual growth rate in 4½ years.

• In net terms (arrivals less departures) permanent and long-term overseas arrivals fell from 292,770 to 283,860 over the year to February and were below the record high of 353,480 in the year to April 2009.

Dwelling starts & work done

• The number of dwelling starts rose by 1.2 per cent in the December quarter after falling by 10.7 per cent in the September quarter.

• House starts rose by 0.1 per cent in the December quarter after falling by 3.1 per cent in the September quarter. Apartment starts rose by 3.5 per cent in the December quarter after falling by 21.1 per cent in the September quarter.

• Work started on 174,509 new dwellings over the 12 months to December, down by 21.8 per cent on the year. Starts fell from the record high of 234,186 dwellings in the year to December 2016.

• Across Australia, starts in the December quarter fell in three states/territories: NSW (up by 7.5 per cent); Victoria (down by 6.0 per cent); Queensland (down by 8.3 per cent); South Australia (up by 10.3 per cent); Western Australia (down by 8.5 per cent); Tasmania (up by 2.2 per cent); Northern Territory (up by 3.0 per cent); and the ACT (up by 84.6 per cent).

• In the year to December, dwelling starts were higher than the decade average in only Tasmania (up 21.0 per cent). Starts were below the decade average in: NSW (down 0.9 per cent); Victoria (down 4.3 per cent); Queensland (down 17.7 per cent); South Australia (down by 1.9 per cent); Western Australia (down by 37.1 per cent); Northern Territory (down 60.3 per cent); the ACT (down 11.0 per cent); and total Australia (down 10.0 per cent).

• In the December quarter residential and commercial building work done fell by 4.7 per cent. New residential work fell by 5.9 per cent with alterations & additions down 2.0 per cent, commercial building fell by 3.6 per cent and engineering work fell by 1.5 per cent. Total construction work fell by 3.4 per cent in the quarter.

• The value of residential and commercial building work in the pipeline stood at $88 billion at the end of December, down by 9.1 per cent on a year ago and below the record-high of $99.2 billion at the end of June 2018.

• Across Australia, 187,954 homes are currently being built, down from a record 231,416 homes in March 2018.

• In the December quarter residential and commercial building work yet to be done (completed), stood at $67.9 billion, down 9.4 per cent on a year ago. Engineering work to be done stood at $70 billion, up 5.8 per cent on a year ago. Total building and engineering work (construction) to be done stood at $137.9 billion at the end of December, down 2.3 per cent on the year.

Consumer sentiment – Week ended April 12

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 8.8 per cent to 78.2 points. Sentiment has lifted by 18.9 per cent since hitting record lows (since 1973) of 65.3 points on March 29.

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

The estimate of family finances compared with a year ago was up from -25.6 points to -19.1 points;

The estimate of family finances over the next year was up from -2.5 points to +5.2 points;

Economic conditions over the next 12 months was up from -55.9 points to -53.1 points;

Economic conditions over the next 5 years was up from -17.6 points to -7.9 points;

The measure of whether it was a good time to buy a major household item was up from -38.8 points to -33.9 points.

• The measure of inflation expectations fell from 4.1 per cent to 3.8 per cent.

Consumer confidence – April 2020

• The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 17.7 per cent in April – the biggest monthly fall on record (in 47 years) – to a 29-year low of 75.6 points. A reading below 100 points denotes pessimism.

• The current conditions index fell by 24.4 per cent. And the expectations index fell by 12.8 per cent.

• All five components of the index fell in April:

The estimate of family finances compared with a year ago fell by 14.8 per cent to 8-year lows of 70.4 points;

The estimate of family finances over the next year fell by 6.6 per cent to 90.9 points;

Economic conditions over the next 12 months fell by 31.0 per cent – the biggest monthly fall on record – to 53.7 points;

Economic conditions over the next 5 years fell by 3.8 per cent to 87.0 points;

The measure on whether it was a good time to buy a major household item fell by 31.6 per cent – the biggest monthly fall on record – to 76.2 points – the lowest level since October 2008.

• Housing outlook: A good time to buy a dwelling? The index fell by 26.6 per cent – the biggest monthly decline on record – to 82.1 points to be down by 31.3 per cent on the year. House price expectations fell by 50.8 per cent – the biggest monthly decline on record – to 69.7 points to be down by 27.1 per cent on a year ago.

• Unemployment expectations rose by 8.2 per cent to a 5-year high of 158.1 points (implying that people expect a weaker job market) to be up 24.1 per cent on a year ago.

• Westpac-Melbourne Institute also provided some additional information relating to the virus crisis:

On unemployment and wages: “Of those that were employed in March, 7 per cent reported losing their job over the last month. A further 14 per cent reported being temporarily stood down without pay.”

Unemployment by industry: “The highest incidence of lay-offs and unpaid stand downs – running at 47.5 per cent – is amongst those in the accommodation, café and restaurant sector.”

Working from home: “Just over 34 per cent of those employed reported they were working from home most of the time, with a particularly high incidence amongst those working in sectors such as communications (79 per cent), finance and insurance (69 per cent), education (60 per cent) and government administration (57 per cent).”

JobKeeper payment intentions to spend: “Amongst the 53 per cent of consumers receiving or expecting to receive a payment, 27 per cent intended to spend it all and a further 20 per cent expected to spend over half.”

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 Australian Bureau of Statistics releases data on dwelling commencements (starts) each quarter. The figures provide guidance on future construction activity. If construction begins on new houses or apartments, it signifies work for building trades.

• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. 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. Confident consumers may be more inclined to spend, especially on major items.

What are the implications for investors?

• The GVC – global virus crisis – has much further to run. There is good news on containment of virus cases in Australia. But we can’t be complacent. And news overseas remains sobering.

• It is all about staying the course.

• We expect cafes, restaurants, gyms, fitness centres, beauty centres and local transport to be some of the quickest businesses to recover post GVC with mining and construction. Housing will depend on the job markets. Tourism will take longer to recover.

Published by Craig James, Chief Economist, CommSec