Vaccines provide ‘shot in the arm’ for consumer confidence

Strong home sales; Delta outbreaks hit Chinese consumers

Consumer confidence; Home sales; China economic data

• What happened? The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 2.0 per cent to 106.2 in September. In the latest survey, 28.3 percent of respondents said the ‘wisest place for savings’ was ‘in the bank,’ with 18.0 per cent preferring to ‘pay down debt’. And 10.9 per cent of consumers now regard real estate as the ‘wisest’ place for savings. But 6.6 per cent of respondents said they intend to spend their savings – a 3-year high.

• In seasonally adjusted terms, private new detached home sales rose by 5.8 per cent in August to 4,646 units. Sales by state: NSW (+17.9 per cent); Victoria (-10.8 per cent); Queensland (+44.3 per cent); South Australia (+64.3 per cent); and Western Australia (-11.8 per cent).

• China economic data: Retail sales expanded at a 2.5 per cent annual rate in August (consensus: +7.0 per cent), the slowest pace in 11 months. Industrial production grew at a 5.3 per cent annual rate in August (consensus: +5.8 per cent). Fixed-asset investment expanded by 8.9 per cent in the first eight months of 2021 from the same period a year earlier (consensus: +9.0 per cent). The unemployment rate was steady at 5.1 per cent.

• Implications: Chinese Government trade figures recently showed that the country imported a record US$18.1 billion worth of goods from Australia in August, despite lingering political tensions between Beijing and Canberra. According to the Pilbara Ports Authority, Australia’s Port Hedland shipped 35.91 million tonnes of iron ore to China in August, down 7.0 per cent from the previous month. In August, the iron ore price fell 15.5 per cent to US$152.60 a tonne on proposed steel production cuts in China, clouding the demand outlook.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The home sales data has implications for banks, retailers, developers, building and building material companies. The Chinese data is important for exporters, especially rural producers, consumer goods, mining and energy companies.

What does it mean?

• Aussies remain resilent, despite extended lockdowns in our biggest cities and rising new Covid-19 Delta case numbers. The quickening of the vaccine rollout and jump in supply of Pfizer and Moderna vaccines – especially to younger Australians – appears to have boosted morale, as state governments announce tentative roadmaps out of lockdowns.

• Consumer sentiment, as measured by Westpac and the Mebourne Institute, rose by 2.0 per cent in September to 106.2 points, up from an 11-month low of 104.1 points in August. Sentiment is up by 13.2 per cent on a year ago.

• Westpac economists reported that, “the improving vaccine situation appears to be a key factor” in the lift in consumer confidence. The confidence index of the 57 per cent of those surveyed that have received at least one Covid-19 jab was 103.7 points in September. And sentiment amongst the 27 per cent of respondents that are unvaccinated, but willing to get inoculated, was an incredible 121.6 points. That said, sentiment for the 16 per cent of respondents unwilling to be vaccinated lagged at 90 points.

• Encouragingly, the measure of unemployment expectations improved by 3.3 per cent in September to 120.5 points, after hitting a 9-month high of 124.6 points in August.

• And four out of five of the major components of the index increased, with measures of consumer views on their finances and the economy all picking up in September. Notably, the ‘economic conditions next 12 months’ index increased by 4.6 per cent and the ‘economic conditions next 5 years’ index was up by 4.8 per cent – both well above long run averages.

• Of course, consumer confidence varies by region, occupation, age and sex. In September, the biggest lift in sentiment occurred in Queensland (+4.8 per cent) and NSW (+5.3 per cent). Confidence improved in lockdown-wary Melbourne (+0.9 per cent) and Sydney (+3.2 per cent). But sentiment surprisingly fell in relatively ‘Covid-free’ South Australia (‑4.3 per cent) and Western Australia (-9.0 per cent), with Victoria flat and Tasmania up 0.9 per cent.

• By demographic group, the biggest lift in consumer sentiment in September, included: those aged 18-24 years (+12.1 per cent); those aged 18-24 years (+5.5 per cent); tenants (+5.7 per cent); para-professionals and tradies (+6.8 per cent); males (+5.2 per cent); and those earning $40,000-$60,000 (+9.7 per cent).

• On the flipside, sentiment fell the most for the following consumers in September: those aged over 45 years (-3.1 per cent); labourers/operators (-10.9 per cent); females (-1.3 per cent); those earning up to $20,000 (-10.3 per cent); and those earning $80,000-$100,000 (-7.4 per cent).

• Consumers remain cautious given the uncertain health and economic backdrop. In September, around half of respondents nominated ‘bank deposits’ (28.3 per cent) or ‘pay down debt’ (18.0 per cent) as their preferred options as the ‘wisest place for savings’. Where consumers were a little more open to risk, 10.9 per cent nominated ‘real estate’ – the most in six months – perhaps in a sign of growing property investor interest. But the allocation to shares eased from decade highs of 12.1 per cent in June to 10.2 per cent in September. And 6.6 per cent of respondents intend to spend their savings – the most in 3 years.

• According to the Housing Industry Association (HIA), new home sales rose by 5.8 per cent in August with mixed outcomes across the larger states, following the conclusion of the HomeBuilder stimulus. But HIA economists said, “The strength of new home sales in recent months indicates that the boom in detached home building will continue to create strong employment opportunities into the second half of 2022.”

• China’s economic recovery is encountering growing headwinds from persistent Covid-19 flare-ups. Weakness is concentrated in the services sector with government restrictions aimed at containing the Delta variant crimping consumer spending. Retail spending decelerated sharply in August to the slowest pace in 11 months as the Nanjing province outbreak intensified. Also, government crackdowns on both the property and education services weighed on consumer sentiment.

• Industrial activity has stabilised after the flooding in Henan province and the latest Delta outbreak shut down the Ningbo-Zhoushan port in July. But Chinese factories continue to contend with rising raw materials and input costs, excerbated by a shortage of computer chips, which is weighing on automobile manufacturing.

• Chinese policymakers have ramped up fiscal support for small businesses in recent weeks with the People’s Bank of China providing US$46.4 billion of low-cost funding to banks so they can lend to small and medium-sized companies.

• And external demand appears to have strengthened as well. China’s exports rose 25.6 per cent in August on a year ago, up from the 19.3 per cent annual gain in July. Chinese government trade figures recently showed that China imported a record US$18.1 billion worth of goods from Australia in August, despite lingering political tensions between Beijing and Canberra. According to the Pilbara Ports Authority, Australia’s Port Hedland shipped 35.91 million tonnes of iron ore to China in August, down 7.0 per cent from the previous month. In August, the iron ore price fell 15.5 per cent to US$152.60 a tonne on proposed steel production cuts in China, clouding the demand outlook.

What do you need to know?

Consumer confidence – September

• The Westpac-Melbourne Institute Index of Consumer Sentiment rose by 2.0 per cent to 106.2 in September to be up 13.2 per cent on a year ago. The survey was taken over the period September 6-12.

• Four of the five major components of the index rose in September.

Of the sub-components, the ‘time to buy a dwelling’ index rose by 8.8 per cent in September. The ‘house price expectations’ index lifted by 1.4 per cent. And the ‘unemployment expectations’ index fell (improved) by 3.3 per cent in September.

• Wisest place for savings. Includes: Banks (28.3 per cent); Pay debt (18.0 per cent); Shares (10.2 per cent); Real Estate (10.9 per cent); Don’t Know (8.2 per cent); Superannuation (6.3 per cent); and ‘Spend it’ (6.6 per cent).

New home sales – August

• In seasonally adjusted terms, private new detached home sales rose by 5.8 per cent in August to 4,917 units. But sales in the three months to August were 15.5 per cent lower than the same time in 2020.

• The Housing Industry Association (HIA) reported, “The strength in new home sales in recent months indicates that the boom in detached home building will continue to create strong employment opportunities into the second half of 2022.”

• New home sales by state in August: NSW (+17.9 per cent); Victoria (-10.8 per cent); Queensland (+44.3 per cent); South Australia (+64.3 per cent); and Western Australia (-11.8 per cent).

• HIA said, “This month’s sample captures 23 per cent of Australia’s new detached home building sector.”

• No data was published by the HIA for multi-unit sales.

China economic data – August

• Retail sales expanded at a 2.5 per cent annual rate in August (consensus: +7.0 per cent), slower than the 8.5 per cent pace in the first seven months of the year. Over the year to August, spending rose the most on office supplies (+20.4 per cent). But smartphone sales plunged 14.9 per cent and automobiles sales were down 7.4 per cent. Online retail sales soared 19.7 per cent in the first eight months of 2021 from the same period a year earlier.

• Industrial production rose at a 5.3 per cent annual rate in August (consensus: +5.8 per cent), below the 6.4 per cent gain in July. Over the year to August, manufacturing output lifted by 5.5 per cent, electricity output jumped 6.3 per cent and mining production rose by 2.5 per cent. Production rose the most for pharmaceuticals (+32.9 per cent), but fell 12.6 per cent for auto manufacturing.

• Fixed-asset investment expanded by 8.9 per cent in the first eight months of 2021 from the same period a year earlier (consensus: +9.0 per cent) after expanding at a 10.3 per cent annual rate in the first seven months of 2021. Over the year to August, investment by the private sector rose by 11.5 per cent and investment by state-owned enterprises increased by 6.2 per cent. By industry, investment rose most for railways/ships/others (+30.2 per cent), but investment in car manufacturing fell by 4.4 per cent.

• Property investment expanded at a 10.9 per cent annual pace in the first eight months of 2021 from the same period a year earlier (consensus: +11.3 per cent).

• The unemployment rate (nationwide survey-based jobless rate) was steady at 5.1 per cent in August (consensus: 5.1 per cent).

• China’s new home prices rose by 4.2 per cent in the first eight months of 2021 from the same period a year earlier (consensus: +4.6 per cent).

Published by Ryan Felsman, Senior Economist, CommSec