Consumer confidence; Private sector credit; New home sales; China data
- Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 9.6 per cent to a record low of 65.3 points – the lowest reading since the survey began in 1973.
- Lending: Private sector credit (effectively outstanding loans) rose by 0.4 per cent in February after rising by 0.4 per cent in January. Annual credit growth rose from 2.6 per cent to 2.8 per cent. Business credit rose by 0.9 per cent – the biggest gain in 2½ years. Business credit was up 3.5 per cent over the year.
- Credit Cards: According to the Australian Prudential Regulation Authority (APRA), loans by deposit taking institutions to households via credit cards lifted from $37.2 billion in January to $37.4 billion in February. Credit card lending is down by 7.2 per cent over the year.
- New detached home sales: In seasonally-adjusted terms, private new detached home sales rose by 6.2 per cent in February. Sales rose by 3.3 per cent in the three months to February to be up by 3.2 per cent from a year ago.
- China expands: The official manufacturing purchasing managers’ index rose from a record low 35.7 points in February to 52.0 points in March (consensus: 44.8 points) – the highest level since September 2017. The services (non-manufacturing) gauge lifted from a record low of 29.6 points in February to 52.3 points (consensus: 42.0 points). Any reading above 50 denotes an expansion in activity.
The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. Private sector credit figures have implications for finance providers, retailers, and companies dependent on business spending. The home sales data has implications for banks, retailers, developers, building and building material companies.
What does it all mean?
- You’ve got to hand it to the Chinese. They never do things in half measures. While most economists were expecting some improvement in China’s official manufacturing and services gauges for March – the purchasing managers’ indexes – the rapid ‘V’-shaped recovery in activity from record lows in February had most of us glancing twice at our screens in our home offices!
- Data over the weekend from WeBank and Bloomberg suggests that China’s back-to-work rate was around 90 per cent for the week ending March 27. While very encouraging, measures of new export orders continue to contract and global demand for Chinese goods will remain depressed as the rest of the world battles the coronavirus outbreak by shutting down swathes of industries while restricting people movements.
- Aussie consumer confidence remains depressed. Sentiment is at 47-year lows as the country confronts unprecedented twin health and economic crises. Rising health concerns, mounting job losses, business shutdowns, worries about paying rents and mortgages, and sliding sharemarkets are ‘front of mind’ for households that are balancing the challenges of working from home and home schooling.
- Backward-looking credit data was released by the Reserve Bank today for the month of February. The same trends were broadly in place prior to the coronavirus shutdown of parts of the economy. Credit growth improved at the beginning of 2020, but remained modest with owner-occupier housing credit growth the only indicator with any momentum. Encouragingly, business credit posted its best month of growth in 2½ years with the annual growth rate well above the 2.5 per cent average growth rate for 2019.
What do the figures show?
Consumer sentiment – Week ended March 29 2020
- The weekly ANZ-Roy Morgan consumer confidence rating fell by 9.6 per cent to a record low 65.3 points – the lowest reading since the survey’s inception in 1973.
- Four of the five major components of the index fell last week:
- The estimate of family finances compared with a year ago was down from -18.5 points to -31.6 points;
- The estimate of family finances over the next year was up from -13.0 points to -12.5 points;
- Economic conditions over the next 12 months was down from -60.9 points to -64.6 points;
- Economic conditions over the next 5 years was down from -15.1 points to -17.1 points;
- The measure of whether it was a good time to buy a major household item was down from -31.6 points to -47.9 points.
- The measure of inflation expectations rose from 3.8 per cent to 4.3 per cent.
Private sector credit – February
- Private sector credit (effectively outstanding loans) rose by 0.4 per cent in February after also lifting 0.4 per cent in January. Annual credit growth rose from 2.6 per cent to 2.8 per cent – the strongest rate in 6 months.
- Housing credit grew by 0.3 per cent in February. And the annual growth rate held steady at 3.2 per cent.
- Owner-occupier housing credit rose by 0.4 per cent to stand 5.1 per cent higher over the year.
- Investor housing finance was flat, and was still down 0.2 per cent from a year ago.
- Personal credit fell by 0.5 per cent to stand 5.3 per cent lower over the year – the biggest annual decline in almost 10½-years (September 2009).
- Business credit rose by 0.9 per cent – the biggest gain in 2½ years. Business credit was up 3.5 per cent over the year.
- The M3 money aggregate lifted by 0.3 per cent to be up 3.8 per cent from a year ago.
- Broad Money rose by 0.4 per cent to be up 4.1 per cent from a year ago.
- Loans and advances by banks grew by 3.5 per cent in the year to February, up from 3.4 per cent in the year to January. Loans by all financial institutions were up by 5.4 per cent – a 5-month high.
- According to APRA, loans by deposit taking institutions to households via credit cards lifted from $37.2 billion in January to $37.4 billion in February. Credit card lending is down by 7.2 per cent over the year.
New home sales – February
- In seasonally-adjusted terms, private new detached home sales rose by 6.2 per cent in February. Sales rose by 3.3 per cent in the three months to February to be up by 3.2 per cent from a year ago.
- The Housing Industry Association reported that the volume of detached house sales in the three months to February rose in NSW (up 25.8 per cent) and Western Australia (up 12.5 per cent). But sales declined in Victoria (down 7.3 per cent), South Australia (down 4.5 per cent) and Queensland (down 0.8 per cent).
- No data was published by the HIA for multi-unit sales.
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.
- Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.
- The Housing Industry Association releases data on the sales of new homes each month. The HIA collects the data each month from a sample of Australia’s largest 100 home builders. The survey covers around 15 per cent of the home building industry.
- China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.
What are the implications for interest rates and investors?
- The Federal government and Reserve Bank are doing their best to engineer a soft landing for the Aussie economy once we eventually emerge from the virus-induced economic downturn later this year. A combined $320 billion worth of stimulus measures (16.4 per cent of Gross Domestic Product or GDP) have been announced in an attempt to save Aussie businesses and protect jobs. Around six million Aussies now have a safety net with the announcement of wage subsidy payments of $1,500 every fortnight – which could support consumer sentiment in next week’s survey.
- Of course, confidence is the key. While providing government payments to businesses and households is crucial to getting the economy ‘back on its feet’, households and business owners remain fixated on how successful restrictive government measures are in containing the virus and ‘flattening the curve.’ Until this occurs, Aussie households will likely cautiously add to their savings, pay down debt and purchase essential supermarket staples – as evidence by the record low annual growth rate in credit card lending.
- News that economic activity in China is lifting – due to containment measures and stimulus – is good news for Aussie resources companies supplying iron ore, coal and natural gas to the world’s second largest economy.
- But China’s National Bureau of Statistics cautioned that the rebound in March activity doesn’t mean the economy is operating at full capacity or ‘back to normal’ just yet. And April data will be worth watching for possible export cancellations and supply chain disruptions from virus-affected trading partners in the West.