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Ryan Felsman, Senior Economist Twitter: @CommSec IMPORTANT INFORMATION AND DISCLAIMER FOR RETAIL CLIENTS The Economic Insights Series provides general market-related commentary on Australian macroeconomic themes that have been selected for coverage by the Commonwealth Securities Limited (CommSec) Chief Economist. Economic Insights are not intended to be investment research reports. This report has been prepared without taking into account your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any securities or financial instruments, or as a recommendation and/or investment advice. Before acting on the information in this report, you should consider the appropriateness and suitability of the information, having regard to your own objectives, financial situation and needs and, if necessary, seek appropriate professional of financial advice. CommSec believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made based on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by any other member of the Commonwealth Bank of Australia group of companies. CommSec is under no obligation to, and does not, update or keep current the information contained in this report. Neither Commonwealth Bank of Australia nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this report. All material presented in this report, unless specifically indicated otherwise, is under copyright of CommSec. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399, a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. This report is not directed to, nor intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or that would subject any entity within the Commonwealth Bank group of companies to any registration or licensing requirement within such jurisdiction. Economics | May 26, 2020 Consumer confidence lifts for 8 successive weeks Credit & debit card spending lifts Consumer confidence; CBA credit & debit card spending data Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.4 per cent to 92.7 points. Sentiment has lifted for eight straight weeks and is up 42 per cent since hitting record lows. Mixed consumer views on their finances and economic outlook: According to ANZ and Roy Morgan, consumer views on their ‘current finances’ fell by 1.8 per cent last week, while ‘future finances’ gained 3.2 per cent. And consumer views on ‘current economic conditions’ gained 0.3 per cent, while ‘future economic conditions’ declined by 2.4 per cent. Consumer views on whether it’s ‘time to buy a major household item’ lifted by 2.5 per cent. Commonwealth Bank (CBA) credit and debit card lending: According to CBA, spending in the week to May 22 was up 3.9 per cent on a year ago with online spending up 12.7 per cent and in-store spending up 0.6 per cent. And “New data on spending through CBA in-store merchant facilities, which also captures business card spending and spending by foreigners, shows a similar trend improvement in spending, albeit growth rates are lower [at -7.5 per cent].” Aussie hotel occupancy levels plummet: Data from hotel analysts STR today shows that in April hotel occupancy rates fell by 72.7 per cent over the year to 19.9 per cent. In the larger markets of Melbourne and Sydney, occupancy rates declined by 65 per cent and 73.7 per cent, respectively. The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The CBA credit & debit card spending data provides guidance for consumer-focussed businesses. What does it all mean? Aussie consumer confidence has improved for eight successive weeks and is now up 42 per cent after hitting record lows on March 29 (lowest since 1973). Households have been heartened so far by Australia’s success in avoiding a catastrophic outbreak of the pandemic which has tragically taken so many lives globally. A semblance of ‘normalcy’ is returning with adherence to social distancing measures enabling some businesses to reopen, the kids to return to school and the footy to resume shortly.

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Page 1: ECO Insights 260520-Consumer confidence lifts...Sydney, occupancy rates declined by 65 per cent and 73.7 per cent, respectively. ... kids to return to school and the footy to resume

Ryan Felsman, Senior Economist Twitter: @CommSec IMPORTANT INFORMATION AND DISCLAIMER FOR RETAIL CLIENTS The Economic Insights Series provides general market-related commentary on Australian macroeconomic themes that have been selected for coverage by the Commonwealth Securities Limited (CommSec) Chief Economist. Economic Insights are not intended to be investment research reports. This report has been prepared without taking into account your objectives, financial situation or needs. It is not to be construed as a solicitation or an offer to buy or sell any securities or financial instruments, or as a recommendation and/or investment advice. Before acting on the information in this report, you should consider the appropriateness and suitability of the information, having regard to your own objectives, financial situation and needs and, if necessary, seek appropriate professional of financial advice. CommSec believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made based on information available at the time of its compilation, but no representation or warranty is made as to the accuracy, reliability or completeness of any statements made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by any other member of the Commonwealth Bank of Australia group of companies. CommSec is under no obligation to, and does not, update or keep current the information contained in this report. Neither Commonwealth Bank of Australia nor any of its affiliates or subsidiaries accepts liability for loss or damage arising out of the use of all or any part of this report. All material presented in this report, unless specifically indicated otherwise, is under copyright of CommSec. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399, a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. This report is not directed to, nor intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or that would subject any entity within the Commonwealth Bank group of companies to any registration or licensing requirement within such jurisdiction.

Economics | May 26, 2020

Consumer confidence lifts for 8 successive weeks Credit & debit card spending lifts Consumer confidence; CBA credit & debit card spending data Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.4 per cent to

92.7 points. Sentiment has lifted for eight straight weeks and is up 42 per cent since hitting record lows.

Mixed consumer views on their finances and economic outlook: According to ANZ and Roy Morgan, consumer views on their ‘current finances’ fell by 1.8 per cent last week, while ‘future finances’ gained 3.2 per cent. And consumer views on ‘current economic conditions’ gained 0.3 per cent, while ‘future economic conditions’ declined by 2.4 per cent. Consumer views on whether it’s ‘time to buy a major household item’ lifted by 2.5 per cent.

Commonwealth Bank (CBA) credit and debit card lending: According to CBA, spending in the week to May 22 was up 3.9 per cent on a year ago with online spending up 12.7 per cent and in-store spending up 0.6 per cent. And “New data on spending through CBA in-store merchant facilities, which also captures business card spending and spending by foreigners, shows a similar trend improvement in spending, albeit growth rates are lower [at -7.5 per cent].”

Aussie hotel occupancy levels plummet: Data from hotel analysts STR today shows that in April hotel occupancy rates fell by 72.7 per cent over the year to 19.9 per cent. In the larger markets of Melbourne and Sydney, occupancy rates declined by 65 per cent and 73.7 per cent, respectively.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The CBA credit & debit card spending data provides guidance for consumer-focussed businesses.

What does it all mean? Aussie consumer confidence has improved for eight successive weeks and is now up 42 per cent after hitting

record lows on March 29 (lowest since 1973). Households have been heartened so far by Australia’s success in avoiding a catastrophic outbreak of the pandemic which has tragically taken so many lives globally. A semblance of ‘normalcy’ is returning with adherence to social distancing measures enabling some businesses to reopen, the kids to return to school and the footy to resume shortly.

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Economic Insights. Consumer confidence lifts for 8 successive weeks

Of course the future appears much better than at the height of the pandemic outbreak, but sentiment is stuck well below its long-run average (of 112.9 points). And consumers remain cautious about their finances and worried about the economic outlook due to high unemployment, elevated household mortgage debt and early signs of an easing in property prices.

Worries also still persist about a potential second wave of coronavirus infection transmissions during the winter months. And concerns about the longevity of government support measures have been heightened by increased speculation that the JobKeeper wage subsidy package may be scaled back after the Federal Treasury revealed a $60 billion ‘shortfall’ in the take up of the scheme - relative to its original estimates.

After ‘tightening their belts’ and ‘bunkering down’ for a couple of months, consumers appear more ready to spend. In fact, spending on credit and debit cards by Commonwealth Bank (CBA) customers continues to pick up. In particular, greater mobility as the lockdown is eased, has seen modest increases in in-store sales (up 0.6 per cent).

Consumers appear keener to upgrade their wardrobes perhaps due to a return to work and colder weather. Spending on apparel and footwear is up by 8.3 per cent over the year to May 22. Retailers are also reporting that younger Aussies are ‘hoovering up’ fashionable sneakers using their JobKeeper ‘income’ and superannuation withdrawal payments.

In fact, data from bank regulator APRA last week shows that Aussies withdrew $10.6 billion from their super funds over the period ended May 17. And wages for those under 20 years surged by 16.8 per cent between March 14 and May 2 as the JobKeeper payments were made, according to Bureau of Statistics and Tax Office payroll data.

What do the reports and figures show?

Consumer sentiment – Week ended May 24

The weekly ANZ-Roy Morgan consumer confidence rating rose by 0.4 per cent to 92.7 points. Sentiment has lifted for eight successive weeks since hitting record lows (lowest since 1973) of 65.3 points on March 29.

Three of the five major components of the index rose last week:

The estimate of family finances compared with a year ago was down from -11.4 points to -13 points;

The estimate of family finances over the next year was up from +17 points to +20.7 points;

Economic conditions over the next 12 months was up from -41.5 points to -41.3 points;

Economic conditions over the next 5 years was down from +2.4 points to -0.1 points;

The measure of whether it was a good time to buy a major household item was up from -5.1 points to -2.7 points.

The measure of inflation expectations fell from 3.3 per cent to 3.2 per cent.

The Commonwealth Bank (CBA) credit card data – Week ended May 22

CBA card data shows spending in the week to May 22 was up 3.9 per cent on a year ago with online spending up 12.7 per cent and in-store spending up 0.6 per cent.

But CBA Group economists cautioned, “While it’s great to see an improvement in spending we note that spending growth is still running below where it was in early January before the coronavirus hit. And many stores are taking card payments only (no cash) because of the coronavirus which flatters the annual growth rate.”

And, “modelled spending through CBA merchant facilities is down 7.5 per cent over the year compared to a small 0.6 per cent/yr. rise for the CBA in-store card spend data. The difference is partly explained by the drop in overseas resident spend which has fallen significantly because of the plunge in overseas arrivals. Business card spend is also likely to have contracted by more than household spend given the big increase in the number of people working from home and the decline in domestic business-related travel. These differing results also suggest our data is better used to assess the broad trends in spending rather than the outright levels.”

In terms of the categories, “Clothing and personal care are

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May 26, 2020 3

Economic Insights. Consumer confidence lifts for 8 successive weeks

continuing to recover. People are going back to work and school and are starting to head out to socialise more which is likely prompting a wardrobe refresh. The winter weather has also hit. Personal care spending is likely to improve further as barbers, hair and beauty salons etc. continue to open for business again,” according to the CBA.

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 weekly Commonwealth Bank (CBA) household credit & debit card spend data is derived from transaction authorisations to give a near real-time view. This means that cancelled authorisations, refunds, reversals, etc. will not be included. Data has not been adjusted for effects of consumers substituting between cash and card payments. CBA merchant facility spend data is derived from the Merchant Acquiring System which includes net sales from both CBA and Other Financial Institution (OFI) domestic and international cards.

What are the implications for investors? It’s no coincidence that those Aussie states and territories recording the biggest pick up in credit and debit card

spending are also those that have the lowest active virus cases. The Northern Territory, Tasmania, South Australia, Queensland and Western Australia are all leading the recovery in consumer spending, according to CBA data as confidence improves. But hotel occupancy data released today suggests that governments with key tourism-dependent regions may want to reconsider their decision to keep borders closed with hotels and their workers continuing to suffer from the tourism downturn.

Prime Minister Scott Morrison is expected to turn his attention to Australia’s ailing job market in his speech to the National Press Club today. With unemployment still expected to lift in the coming months and concerns about an ‘income cliff’, the Prime Minister is expected to target Australia’s near $8 billion vocational education and training sector. With youth unemployment and underutilisation rates skyrocketing to 13.8 per cent and 37.3 per cent respectively in April, clearly more needs to be done to support younger Aussies impacted by the loss of jobs and hours due to the virus lockdown.

Skilled education remains key to Australia’s future workforce as we rebuild our economy after the virus crisis. The country continues to languish below our OECD peers in education rankings and our Economic Complexity Index ranking is a dismal 59th. While upskilling our tradies for the construction sector is vital, confronting the post COVID-19 world with more engineers, scientists and other professional technicians to support high-tech manufacturing and other related growth sectors of the economy are equally important. Perhaps the $60 billion over-estimate of JobKeeper spending could be partially directed towards our TAFEs and universities for local students faced with high unemployment?

Ryan Felsman, Senior Economist, CommSec Twitter: @CommSec