Signs of hope for households
Consumer sentiment provides a faint glimmer amid the pandemic's economic fallout.
Australian consumers have been hit hard by the coronavirus crisis which will have an enduring impact on the economy long after lockdown. But confidence may be picking up after the initial knock.
Consumer sentiment—an indicator of how optimistic consumers feel about their finances and the state of the economy—ticked up 16 per cent to 88.1 in May, according to the latest Westpac-Melbourne Institute Index of Consumer Sentiment. This is up from all-time lows of 75.6 of early April, when the impact of COVID-19 was fully felt.
Westpac chief economist Bill Evans suggests consumers are encouraged by Australia's success in containing the coronavirus’s spread and the easing of some of the social restrictions
“The lift may be a sign that support from a range of measures, including the JobKeeper and JobSeeker policies as well as temporary relief for mortgage and rental payments, may be providing more help at the margin,” he says.
A separate Australian Bureau of Statistics survey on the Household Impacts of COVID-19 released this week showed one in five households (22 per cent) have experienced employment-related, housing or other financial stressors due to COVID-19.
The study finds mortgage stress related to COVID-19 during April and May is affecting one in eight (13 per cent) of Australians who are either owner-occupier or investment property owners.
The rising rate of unemployment is a key factor in each of these findings, having jumped in April to 6.2 per cent from 5.2 per cent in March. The number of employed people dropped by 594,300 in April to 12.4 million people between March and April, according to the ABS.
And this rate is tipped to keep climbing. The Grattan Institute forecasts unemployment will hit 12 per cent – the highest since the Great Depression in the 1930s – possibly as high as 15 per cent.
“The longer this downturn goes, and the worse it gets, the less likely the labour market and the broader economy can spring back afterwards,” says Grattan Institute household finances program director, Brendan Coates. He co-authored the working paper, Shutdown: estimating the COVID-19 employment shock.
The federal government’s $130 billion JobKeeper wage subsidy will disguise much of the initial impact of the crisis on employment, according to the Institute. Some Australians off work will continue to be regarded as "employed" because they receive income from their employer via the JobKeeper scheme.
Others, especially older workers, will give up looking for work and will therefore not be counted in the unemployment rate.
Federal Government figures indicate 835,000 businesses employing 5.5 million workers have received JobKeeper payments so far. And 1.4 million have received increased payments linked to JobSeeker.
'Spending on a tight rein'
The greater financial stress is weighing on consumption and family finances. A sub-index of Westpac’s Index of Consumer Sentiment that tracks household finances versus a year ago rose 5.5 per cent to 74.3. This was a slight improvement on March, when it had dropped 14.8 per cent to an eight-year low of 70.4.
The other big mover was the index's "time to buy a major item" sub-index, which surged 26.7 per cent to 96.6 in May, from 76.2 in April.
"But the overall level of the index still suggests most consumers will be looking to keep spending on a tight rein,” says Westpac’s Evans.
This reduced willingness to spend will favour supermarket retailers over the short- to medium-term, says Morningstar retail analyst and equity research director Johannes Faul.
“We expect supermarket sales growth to be above trend for the remainder of calendar 2020, even if restaurants and pubs reopen and consumers return to work and school soon, as newly acquired home-eating habits only gradually unwind,” he says.
“We have increased our full-year supermarket sales estimates by 3 per cent and 6 per cent in fiscal 2020 and 2021, respectively."
Faul expects the share of meals consumed at home will return to pre-coronavirus levels by fiscal 2024.
But the outlook is bleaker for Australian department stores, which Faul says will face ongoing pressures.
"Times are tough for Australian department stores, and this pressure is unlikely to let up soon. We expect Amazon to prove similarly disruptive to incumbent retailers in Australia as in the U.S.,” Faul said.
Further boosted by coronavirus, Faul says: “the online door is now wide open … We expect Amazon Australia to gain traction over the medium term and to become the most formidable competitor in consumer electronics.”
Both JB Hi-Fi and Harvey Norman have benefited from a temporary boost in sales during lockdown, as spending on computer and office equipment has jumped, Faul says.
"But longer-term investment risk is high because uncertainty surrounds the pace of structural change to the retail industry, as consumers increasingly purchase products online."