Beacon of Hope: Westpac Consumer Confidence Picks Up in June

Consumer confidence has found its way back from downward spiral ignited by COVID-19 pandemic, springing back to pre-pandemic levels, reveals latest Westpac Consumer Sentiment index.

The recent Westpac-Melbourne Institute Index of Consumer Sentiment has demonstrated a 6.3 per cent month-on-month rise in consumer confidence to 93.7 in June 2020, reaching closer to pre-COVID levels by recovering losses suffered during lockdown restrictions in Australia.

The index marked a rise for second straight month in June, after experiencing a surge of 16.4 per cent in May to 88.1. The figures suggest consumer confidence has shown a significant turnaround from extremely weak 75.6 reading in April.

The consumer confidence was bolstered by Australia’s continued success in containing the spread of coronavirus, which encouraged further lifting of restrictions over May 2020.

Extensive easing of social distancing restrictions stimulated confidence levels in major Australian states, with Victoria demonstrating a 11.7 per cent jump in confidence to 94.9 and New South Wales exhibiting a surge of 4.8 per cent to 95.5 in June 2020.

Westpac notified that it would be very surprising if recent upward momentum continues in consumer confidence amidst elevated levels of unemployment rate, extensive restrictions in place and permanent structural change in economy.

In comparison to Westpac Consumer Sentiment index, ANZ-Roy Morgan Consumer Confidence Index plunged by 1.3 points in June’s first week to 97 points, backed by a significant fall of 5.7 per cent in ‘Time to buy a household item’ constituent. However, it is worth noting that ANZ-Roy Morgan consumer confidence has gained around 50 per cent since the bottom attained during the height of COVID-19 pandemic.

CBA Data Exhibits Signs of Revival in Consumer Spending

Latest data on debit and credit card transactions from Commonwealth Bank of Australia (ASX:CBA) has revealed a surge in customer spending amidst an ease in social distancing restrictions. The data suggested that a 5 per cent increase in debit and credit card transactions last week on prior corresponding period.

Though Tasmania demonstrated a maximum rise of 13 per cent in debit and credit card transactions, Australian Capital Territory showed negative spending of -2 per cent during the same period. ACT’s weak spending was driven by the existence of stringent restrictions in the territory against all other Australian states.

A massive spike has been noted in liquor sales (45 per cent up) and supermarkets and grocery stores (25 per cent up) while a small increase was evident in debit and credit card transactions at cafes and restaurants (1 per cent up).

Along with consumer spending, business conditions are also turning back in Australia, as suggested by latest NAB Monthly Business Survey.

Business Confidence Improves in May

National Australia Bank Limited’s (ASX:NAB) May 2020 monthly business survey demonstrated a record rise of 10 points in business conditions to -24 index points, indicating a recovery from GFC lows observed in last month.

The improvement in profitability and trading conditions drove May 2020 rebound in business conditions, with employment index experiencing a more modest improvement. With capacity utilisation still at lower levels and activity yet to completely rebound, NAB expects it will take some time for employment index to reach positive levels.

Moreover, though business conditions exhibited a broad-based improvement in May, they remained deeply negative with notably weaker conditions in services industries. NAB observes high uncertainty both internationally and domestically, with businesses expected to remain concerned over how swiftly they would return to full capacity.

Economic Recovery to Lean on Consumer and Business Confidence

According to RBA’s Governor, Mr Philip Lowe, restoration of business and consumer confidence are likely to play a pivotal role in determining the shape and timing of economic recovery. Despite a considerable fall in new infections and easing of lockdown restrictions, he expects confidence of people and businesses over their own finances and health situation to be instrumental in economic revival.

Moreover, Mr Lowe believes that more fiscal easing may be required to bolster business and consumer confidence. He has lately warned of significant risks on early removal of fiscal assistance from the economy, cautioning that premature ending of fiscal support could be damaging for economic recovery.

He particularly emphasized on the JobKeeper scheme, that he thinks need to be extended beyond its original six-month period to prevent the nation’s economy from falling off a cliff. However, speculations are rife over scrapping of JobKeeper scheme before September, with latest withdrawal of benefit for childcare workers intensifying the fear.

Though monetary and fiscal stimulus packages are lending a hand to an economic upswing, revitalization of business and consumer confidence is of paramount importance. What’s worth noting is that improving business conditions and mounting consumer confidence are bolstering signs of earlier than expected economic revival.