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Economics | August 4, 2020

Consumer sentiment hits 14-week low Business confidence weakens; Record trade with China Consumer & business confidence; International trade Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.4 per cent to a

14-week low of 88.6 (long-run average since 1990 is 112.7). Sentiment fell for a sixth successive week, but is still up by 35.7 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

Business confidence: The Roy Morgan business confidence index fell by 10.7 points or 11.3 per cent to 84.3 in July – the second lowest level on record (since December 2010). Confidence is 29.7 points lower than a year ago and below the long-term average of 114.

Foreign trade: The trade surplus increased to $8.20 billion in June (consensus: $8.8 billion surplus) from $7.34 billion in May. The rolling annual surplus was a record high $77.41 billion in the year to June, up from $77.30 billion in May. Net exports (exports less imports) will add 1.2 percentage points to June quarter economic growth.

Record trade: Australia's annual exports to China were at new record highs of $151.04 billion in June and imports hit all-time highs of $80.89 billion. China accounts for 34 per cent of total Aussie trade.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The business survey has broad implications for investors and the economy. The trade data is instructive on income flows in the economy and consumer and business activity.

What does it all mean? The resurgence in Victorian virus infections - after a two-month period where it seemed that Australia had

successfully flattened its COVID-19 case curve - is weighing on both consumer and business confidence. Increasing consumer and business concerns about the health situation and the impact on their finances from the economic downturn, associated with tighter government restrictions, is weighing on sentiment.

Consumer confidence hit 14-week lows last week, declining for a sixth successive week. ANZ economists said, “…this survey does not capture the effect of the extended Melbourne lockdown, as the announcement came late in the weekend.”

The headline fall in sentiment was modest - at just 0.4 per cent - and consumer views on their near-term finances remain resilient. The extension of income support through the JobKeeper and JobSeeker schemes, paid

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Economic Insights. Consumer confidence hits 14-week low

pandemic leave and mortgage repayment holidays continue to be supportive of household finances, despite two-decade high unemployment rates. That said, rising health risks, increasing economic and labour market uncertainty, moderating home prices and an eventual tapering of the wage subsidy are likely to constrain consumer spending in the near term.

As the health and economic crisis deepens in Victoria, state governments are becoming increasingly cautious. In the past week, Queensland closed its borders to residents of Greater Sydney, Northern Territory declared Greater Brisbane a coronavirus hotspot, New South Wales tightened some restrictions and Western Australia doubled down on its border stance after the Federal Government re-considered a legal challenge against its hard border.

Measures that increase restrictions will slow down the pace of the national economic recovery with activity outside of Victoria picking up recently. In fact, business confidence in Queensland (down 13.3 per cent), Western Australia (down 18.2 per cent) and South Australia (down 32.1 per cent) fell by the most in July, according to Roy Morgan Research, as states extended the closure of their borders further into the future due to virus outbreaks in Melbourne and Sydney.

What do the figures show?

Consumer sentiment – Week ended August 2

The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.4 per cent to a 14-week low of 88.6 (long-run average since 1990 is 112.7). Sentiment fell for a sixth successive week, but is still up by 35.7 per cent since hitting record lows of 65.3 on March 29 (lowest since 1973).

Three of the five major components fell last week:

Business confidence - July

The Roy Morgan business confidence index fell by 10.7 points or 11.3 per cent to 84.3 in July – the second lowest level on record (since December 2010). Confidence is 29.7 points lower than a year ago and below the long-term average of 114.

According to Roy Morgan, “Over the weekend Victorian Premier Daniel Andrews declared a ‘State of Disaster’ with new measures introduced across the State. The new restrictions include a nightly curfew for Victorians between 8pm – 5am and the closure of all non-essential retail businesses.

The ‘Stage 4’ restrictions in Victoria are set to run for at least six weeks until mid-September and are the most stringent restrictions yet seen in Australia to deal with the COVID-19 pandemic.

The second wave of COVID-19 which began in Victoria is having an extremely negative impact on Business Confidence not only in Victoria, but around Australia. The index is down 12.5 per cent to 73.9 in Victoria but has also plunged 32.1 per cent to only 60.0 in SA, by 13.3 per cent

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Economic Insights. Consumer confidence hits 14-week low

to 83.0 in Queensland and by 18.2 per cent to 90.4 in WA.

Perhaps the most positive news from the latest results are that businesses are still significantly more positive about their own prospects over the next 12 months than negative. Over two-fifths of businesses, 43.2 per cent, expect to be ‘better off financially’ this time next year compared to only 23.9 per cent that expect to be ‘worse off’.

For the Australian economy to enter a sustainable path of recovery it is vital the latest measures announced for Victoria, which by itself represents about 25 per cent of the Australian economy, are successful in enabling the State to get on top of the second wave of COVID-19 as soon as possible.”

International trade – June

The trade surplus increased to $8.20 billion in June (consensus: $8.8 billion surplus) from $7.34 billion in May. The surplus had hit a record high $10.63 billion in March. The rolling annual surplus was a record high $77.41 billion in the year to June, up from $77.30 billion in May.

Exports of goods and services rose by 3.5 per cent (exports of goods rose by 3.3 per cent).

Imports of goods and services rose by 1.3 per cent (goods imports also rose by 1.3 per cent).

Rural exports lifted by 3.6 per cent. Exports of non-rural goods rose 0.6 per cent. Gold exports surged 41 per cent.

Major moves: Non-monetary gold was up $687 million or 41 per cent; Cereal grains and cereal preparations rose $135 million or 33 per cent; Wool & sheepskins up $37 million or 24 per cent; Other manufactures up $227 million or 14 per cent; Transport equipment up $33 million or 13 per cent; Metal ores and minerals up $941 million or 9 per cent; Other mineral fuels down $788 million or 18 per cent; and Coal, coke and briquettes down $456 million or 12 per cent.

Within imports, consumer imports climbed 7.2 per cent; capital goods imports declined 2.2 per cent and intermediate goods imports rose 4.7 per cent.

Services exports rose by 4.2 per cent and services imports lifted 1 per cent in June.

A record net services surplus of $2.51 billion was posted in June.

Australia's annual exports to China rose from $150.78 billion to a record $151.04 billion in June. Exports to China are up 12.6 per cent on a year ago. Exports to China account for a record 39.46 per cent of Australia's total exports.

Australia's annual imports from China lifted from $79.23 billion in May to a record $80.89 billion in June. Annual imports were up by 3.8 per cent on a year ago. Imports from China accounted for a record 27.07 per cent of Australia's total imports.

Australia's rolling annual trade surplus with China fell from $71.56 billion in May to $70.14 billion in June.

Australia exported $17.51 billion to the US in the year to June and imported $36.33 billion.

Australia exported $15.64 billion to the UK in the year to June and imported $6.94 billion.

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.

The monthly Roy Morgan business survey is valuable in providing a timely reading about the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.

The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The

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Economic Insights. Consumer confidence hits 14-week low

balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

What are the implications for investors? Australia continues to run large trade surpluses. In June the country posted its 30th successive surplus. During the

pandemic, monthly surpluses have remained solid – hitting record highs of $10.63 billion in March - before easing a little to $8.2 billion in July.

Despite political tensions with China, Australia continued to export and import more goods and services in July than ever before to/from our biggest trading partner. China’s insatiable demand for our biggest export - iron ore - has seen export volumes hit record highs. Demand for Aussie gold is also soaring, up more than 40 per cent in July.

And while export income is incredibly strong - boosting the beleaguered coffers of governments – a record net services surplus was posted due to the closure of international borders, impacting tourism and education.

Ryan Felsman, Senior Economist, CommSec Twitter: @CommSec