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How Debt can be Good

For a long time I have tried to keep debt low. For a long time I have been uncomfortable with debt (see Why You Don’t Need Debt and The Borrower is Slave to the Lender). However, over time, I have borrowed more and more, and I think it is because I have become comfortable with debt. I used a CommSec margin loan to borrow to buy equities, which I do not recommend because interest rates are…

Nestiny Funiversity – Life Expectancy of Appliances and Home Systems

Nestiny is a free home buyer and seller education website with fun, guided learning tools to improve the home buying and selling experience for consumers and agents. — Read on www.nestiny.com/funiversity/page/life_expectancy_of_appliances_and_home_systems

Within a 2 week period, our A/C, our refrigerator and our washing machine went out and was a huge pill to swallow at one time!! This…

Home Improvement Sales Soar | Great read — cross sectional analysis industry experts.

Consumer confidence at 4-month high

Retail trade; Consumer Confidence; China inflation

Retail trade rose by 0.2 per cent in November to be up 3.3 per cent over the year.

Non-food retailing rose by just 0.1 per cent in November after rising by 0.5 per cent in October. Non-food retailing had risen by 2 per cent in the prior three months – the strongest three-month result in 2 years. Non-food retail spending is now up 3.4 per cent on a year ago.

Annual growth of spending at hardware, building & garden suppliers was up by 10.2 per cent in the 12 months to November – the fastest annual growth in 1½ years.

Consumer confidence: The ANZ / Roy Morgan consumer confidence rating surged to four-month highs, up by 5.9 per cent to 120.1 in the week to January 8. Confidence is up 5.3 per cent over the year and well above the average of 113 since 2014. All five components of the index rose in the latest week.

Chinese inflation: Consumer prices in December were up 2.1 per cent over the year (2.3 per cent forecast). Producer prices were up 5.5 per cent (4.5 per cent forecast) – the biggest gain in five years

What does it all mean?

The modest lift in November retail sales may not have met expectations but there is no reason to get overly concerned. Particularly given that retail sales had posted solid gains in the previous couple of months. In fact nonfood retailing had jumped by 2 per cent in the prior three months – marking the strongest result in two years. The real disappointment in the latest result lies with department stores, where sales have now gone backwards for two consecutive months.

The breakdown of where spending is taking place showed that once again, Aussie households are updating their wardrobes. Spending at clothing outlets jumped by 2.3 per cent in December alone. In addition the ongoing strength in homebuilding is supporting hardware, building and garden suppliers, with annual growth now up 10.2 per cent on a year ago – the fastest annual growth in 1½ years.

Looking forward all indications are that retail activity performed particularly well over the Christmas and post Christmas period. And importantly the Commonwealth Bank Business Sales index (BSI) has flagged a lift in activity over the last couple of months with particular strength in December. Keep in mind that the BSI tracks the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities, and as such it is more a measure of economy-wide spending.

The surge in consumer confidence is certainly encouraging for the retail sector. Not only did the overall confidence reading jump to a 4-month high, but all five components of the index recorded healthy gains. In particular, the measure of whether it was a good time to buy a major household item, lifted to the highest levels in four months. No doubt the discounts offered by retailers post-Christmas is enticing households to spend a little bit more freely.

What do the figures show?

Retail trade

Retail trade rose by 0.2 per cent in November after rising by 0.5 per cent in October. Trend spending rose by 0.4 per cent in November. Retail trade is up 3.3 per cent over the year.

Non-food retailing rose by just 0.1 per cent in November after rising by 0.5 per cent in October. Non-food retailing had risen by 2 per cent in the prior three months – the strongest three-month result in 2 years. Non-food retail spending is now up 3.4 per cent on a year ago.

Spending at department stores fell by 0.3 per cent in November after falling by 0.4 per cent in October, while spending at “other recreational goods retailing” fell by 3.2 per cent, and spending at electrical goods stores was down by 1.1 per cent in November.

Spending rose the most at clothing retailers, up by 2.3 per cent (strongest result in five months), followed by hardware, building and garden suppliers (up 1.3 per cent).

Annual growth of spending at takeaway food outlets was up by 9.9 per cent – although easing from the fastest annual pace of growth in 6½-years (12.1 per cent in October). Spending at hardware, building & garden suppliers was up by 10.2 per cent in the 12 months to November – the fastest annual growth in 1½ years.

Sales by chain-store retailers and other large retailers rose by 0.4 per cent in November after rising by 0.5 per cent in October. Sales are up 4.2 per cent over the year.

Sales rose in five of the eight states and territories: NSW (+0.5 per cent), Victoria (+0.4 per cent), Queensland (+0.1 per cent), South Australia (-0.4 per cent), Western Australia (-0.6 per cent), Tasmania (+0.1 per cent), Northern Territory (+0.3 per cent), ACT (-0.1 per cent).

Consumer confidence

The ANZ/Roy Morgan consumer confidence rating surged by 5.9 per cent to 120.1 in the week to January 8 – a 4-month high. Confidence is up 5.3 per cent over the year and well above the average of 113 since 2014. All five components of the index rose in the latest week:

The estimate of family finances compared with a year ago was up from +10 to +13;

The estimate of family finances over the next year was up from +28 to +33;

Economic conditions over the next 12 months was up from -8 to +2;

Economic conditions over the next 5 years was up from +9 to +11;

The measure of whether it was a good time to buy a major household item was up from +28 to +41.

In addition the inflation expectation 2 years ahead was at 4.1 per cent, and has now held above 4 per cent over the past 4 months.

Chinese inflation:

Consumer prices rose by 0.2 per cent in December to be up 2.1 per cent on the year (forecast 2.3 per cent).

Non-food prices rose by 0.2 per cent in December to be up 2.0 per cent over the year. It was the biggest annual gain in non-food prices in five years.

Food prices rose by 0.4 per cent in December to be up 2.4 per cent over the year.

Producer prices rose by 5.5 per cent in the year to December, ahead of the market forecasts centred on a 4.5 per cent lift in prices. It was the biggest annual rise in business inflation in five years.

What is the importance of the economic data?

The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.

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.

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 economic have major implications for the Aussie economy.

What are the implications for interest rates and investors?

Overall, it is still early days, but it does seem like spending plans are healing. More importantly the economy seems to be improving and supportive of a further lift in retail activity. Go back six months and consumer and business were hit by ‘Brexit’ fears and election inertia. With those issues out of the way, there is scope for a recovery in spending, especially with interest rates and inflation both so low. In addition the improvement in consumer confidence is also positive for the sector. The one potential concern is the ongoing lift in petrol prices and the impact it could potentially have on household activity.

A number of indicators make rate cuts look less likely than even six months ago – improved Chinese activity levels, a stronger terms of trade, a modest lift in domestic activity. And now that inflation looks likely to lift modestly over 2017, it is unlikely that the Reserve Bank will be looking to cut interest rates further.

Looking forward, policymakers will keep a close eye on how the rebalancing of the domestic economy (away from mining investment) is keeping pace.