Rate hike worries rattle consumers

Weekly consumer confidence; CBA card spending; CBA Household Spending Intentions

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.9 per cent to 99.9 points. Last week, household views on their ‘Current financial conditions’ dropped 7.8 per cent to a 14-month low of -9 points. And consumer views on their ‘Future financial conditions’ dipped 3.5 per cent to a 15½-month low of +14.6 points.
• According to Commonwealth Bank (CBA) economists, “CBA’s internal card spending data for the week ending 4 February 2022 show another pick‑up in the pace of spending growth.”
• The Commonwealth Bank (CBA) Household Spending Intentions (HSI) report was released. The CBA HSI Index fell by 10 per cent in January to 103.8. But the HSI Index is up 1.4 per cent over the year to January.

What does it all mean?

• Consumer confidence, as measured by ANZ and Roy Morgan, fell by 1.9 per cent to 99.9 points last week, a smidgen below the 100 point neutral level, which separates optimists from pessimists. Sentiment fell most in Western Australia, down 8.1 per cent, as Omicron virus variant cases increased and bushfires ravaged the state’s Wheat belt. Last week, confidence also fell in Queensland (down 3.4 per cent), South Australia (down 1.9 per cent) and NSW (down 1.7 per cent). But sentiment rose by 1.5 per cent in Victoria.
• Household views on their ‘Current financial conditions’ dropped 7.8 per cent to a 14-month low of -9 points. And consumer views on their ‘Future financial conditions’ dipped 3.5 per cent to a 15½-month low of +14.6 points. The declines coincided with comments from Reserve Bank Governor Philip Lowe last Wednesday where he said, “It’s certainly a plausible scenario that [interest] rates go up later this year,” as opposed to his previous guidance of no change in the cash rate until at least 2024. Of course, the first potential increase in interest rates for over 10 years could have huge implications for Aussie household budgets, as most borrowers have variable rate mortgages.
• Consumer views on the economy were mixed last week. Household views on their ‘Current economic conditions’ eased by 0.3 per cent, but views on ‘Future economic conditions’ rose by 2.4 per cent.
• Importantly, the key measure of consumer spending intentions continued to lift, with the ‘Time to buy a major household item’ sub-index up by 0.7 per cent last week.
• Commonwealth Bank (CBA) economists released the Household Spending Intentions (HSI) report today. The CBA HSI Index fell by 10 per cent in January to 103.8 points, back down to levels last seen in September 2021, when spending was heavily impacted by Delta lockdowns on Australia’s east coast.
• The HSI Index – which provides an in-depth gauge of Australian consumer spending using CBA and Google data – was dragged down by falls in the Retail (down 20.9 per cent), Entertainment (down 20.8 per cent), Household Services (down 14.4 per cent) and Home buying (down 13.8 per cent) spending intention categories.
• Of course, the surge in Omicron virus variant cases and “shadow lockdowns” – as consumers opted to stay at home as infections jumped – together with seasonal summer holiday weakness most likely contributed to the drop in spending intentions.
• That said, more recent CBA credit and debit card data suggests consumer spending is now recovering. In fact, according to CBA Group economists, “CBA’s internal credit and debit card spending data for the week ending 4 February 2022 show another pick up in the pace of spending growth. Both online and in store spending growth rose, as did retail and non retail spending.”

What do you need to know?

Consumer sentiment – Week ended February 6

• The weekly ANZ-Roy Morgan consumer confidence rating fell by 1.9 per cent to 99.9 points (long-run average since 1990 is 112.4). Three of the five major sub-components fell last week.

CBA card spending data – Week ended February 4

• CBA economists said, “CBA’s internal card spending data for the week ending 4 February 2022 show another pick‑up in the pace of spending growth. Both online and in‑store spending growth rose, as did retail and non‑retail spending. The pace of spending growth also lifted for both goods and services.”
• By category: “Spending on groceries and other food for home consumption was up slightly in the week while spending on eating and drinking out eased a little after having risen over the past several weeks.  Growth in spending on recreation, clothing & footwear, and transport rose, but the pace of increase has slowed. Personal care spending growth continued to lift.  Spending on household furnishings also rose.”
• By region: “Spending momentum picked up across most states and territories. There were bigger lifts in South Australia and Tasmania in the week. Spending growth lifted in Victoria after a slight pull‑back the previous week. In the Northern Territory spending growth was little changed from the previous week. In Western Australia spending growth has tracked sideways over the past couple of weeks.”

CBA Household Spending Intentions index (HSI) – January

• The CommBank Household Spending Intentions (HSI) Index fell by 10 per cent in January to 103.8 points. But the HSI Index is up 1.4 per cent over the year to January.
• CBA economists reported, “Retail, Entertainment and Household services led the declines. Both seasonal factors and the impact on economic activity of the Omicron variant are at play here.”