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Economics | May 29, 2020

Record fall in personal loans Aussies driving older cars Private sector credit; Credit cards; Motor vehicle census; COVID-19 survey Lending: Private sector credit (effectively outstanding loans) was flat in April, but credit was still up 3.6

per cent on the year. Personal credit fell by a record 3 per cent in April to be 9.3 cent lower over the year – the biggest annual decline on record (since September 1976).

Deposits & credit cards: According to the Australian Prudential Regulation Authority (APRA), resident deposits rose by over $53.4 billion or 2.4 per cent in April reflecting the term funding stimulus measure. Household deposits were up by $21.7 billion. But loans to households via credit cards fell from $36.4 billion to a 12-year low of $32.5 billion in April. Credit card lending is down by 18 per cent over the year.

Motor vehicle census: The national vehicle fleet rose by 1.5 per cent to 19.8 million in the year to January 2020 – broadly in line with population growth of 1.5 per cent in the year to September 2019. The average age of passenger vehicles across Australia increased to 10.1 years from 9.9 years in 2019.

COVID-19: Survey of households: According to the Australian Bureau of Statistics (ABS), “The proportion of Australians aged 18 years and over with a job remained stable between early April (63.4 per cent) and mid-May (63.2 per cent). The proportion of people indicating that they had worked paid hours increased slightly over the same period, from 55.8 per cent in early-April to 58.7 per cent in mid-May. One in five (20 per cent) said they were eligible to receive the fortnightly JobKeeper payment.”

Private sector credit figures have implications for finance providers, retailers, and companies dependent on business spending. The terms of trade data is useful in assessing the outlook for the Australian dollar and therefore trade-exposed businesses.

What does it all mean? The impact of the economic lockdown on Aussie households was evident in April with most steering clear of

taking on more debt. Worries about a recession saw consumer lending plummet by the most on record. Given heightened economic uncertainty and rising joblessness there appears to be little appetite to increase personal

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lending with savings increasing in April - as evidenced by a mammoth $21.7 billion lift in household deposits. Loans to purchase new motor vehicles likely fell in April with Aussies already exhibiting a desire to hold to their old ‘clunkers’. The average age of passenger vehicles is now over 10 years – the oldest in 17 years!

That said, owner-occupier housing credit continued to lift in April, despite the imposition of strict social distancing measures which meant auction clearance rates and housing sales volumes fell sharply in the month. Supportive policy measures around mortgage payment deferrals may have lent support.

Concerns are mounting about a possible ‘solvency cliff’ amid growing speculation that the government’s wage subsidy program JobKeeper will be concluded or tapered sometime in September. While some firms are operating in a ‘zombie-like’ manner at the moment - propped up by JobKeeper - the vast majority are fighting for their survival and trying to retain their employees, despite enormous difficulty.

Of course, combined stimulus programs from the government and Reserve Bank have played a vital role in nursing Aussie businesses through the pandemic. In particular, the Bank’s $90 billion Term Funding Facility - designed to increase business lending, especially for SMEs – has helped commercial banks to reduce business lending rates to record lows. And the government has also granted a six-month exemption from responsible lending obligations when lenders provide credit to existing customers who run a small business. But in a somewhat surprising outcome, business lending was subdued in April at the height of the economic lockdown. Cash-strapped Aussie firms had sought additional credit lines in their droves in March (the most in 32 years).

What do the figures show? Private sector credit: April 2020

Private sector credit (effectively outstanding loans) was flat in April, but was still up 3.6 per cent on the year.

Housing credit grew by 0.2 per cent in April. And the annual growth rate held steady at 3.1 per cent.

Owner-occupier housing credit rose by 0.5 per cent to stand 5.3 per cent higher over the year (11-month high).

Investor housing finance fell 0.2 per cent to be a record 0.6 per cent down from a year ago.

Personal credit fell by a record 3 per cent in April. Personal credit was 9.3 cent lower over the year – the biggest annual decline on record (since September 1977).

Business credit rose by 0.1 per cent in April after soaring by 3.1 per cent in March – the biggest rise in 32 years. Business credit was up 6.7 per cent over the year (biggest rise since May 2016).

The M3 money aggregate lifted by 2.8 per cent to be up 9.2 per cent from a year ago – the strongest annual growth rate in 7½ years.

Broad Money rose by 2.9 per cent to be up 9.3 per cent from a year ago – the strongest annual growth rate in 10½ years.

Loans and advances by banks grew by 4.4 per cent in the year to April. Loans by all financial institutions were up by 6.2 per cent.

According to APRA, resident deposits held at Authorised Deposit-taking Institutions rose by $53.4 billion in April or 2.4 per cent. Deposits from financial institutions rose by $11.6 billion with deposits by companies up $12.1 billion, household deposits up $21.7 billion and government deposits up $8 billion.

Loans to households via credit cards fell from $36.4 billion to a 12-year low of $32.5 billion in April. Credit card lending is down by 18 per cent over the year.

Motor vehicle census 2020

The national vehicle fleet rose by 1.5 per cent to 19.8 million in the year to January 2020 – broadly in line with population growth of 1.5 per cent in the year to September 2019.

Petrol-powered vehicles decreased by 0.9 percentage points to 72.7 per cent of the national fleet with diesel powered vehicles up 1 percentage point to 25.6 per cent

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of the total.

Over the year, light rigid trucks rose by 5.8 per cent, followed by campervans, up 3.5 per cent. Passenger vehicles increased by 1.2 per cent, led by Toyota with 3.0 million registrations.

There were 14,253 electric vehicles registered in 2020 is almost double the previous year.

According to the Bureau of Statistics (ABS), “All states and territories reported a decline in growth in 2020, with the exception of Tasmania (remaining steady at 2.6 per cent) and Western Australia (1.5 per cent growth, up from 0.6 per cent in 2019). The Northern Territory was the only state or territory to record an overall fall in the number of vehicles registered, with a decrease of 0.7 per cent.”

The average age of vehicles across Australia increased to 10.4 years, up from 10.2 years in 2019.

The average age of passenger vehicles across Australia increased to 10.1 years from 9.9 years in 2019.

Household Impacts of COVID-19 Survey, 12 May - 15 May 2020

According to the Bureau of Statistics, “This publication provides information on the incidence and nature of impacts due to COVID-19, as experienced by households in Australia. The survey was conducted between 12 May and 15 May 2020.”

Key findings

The proportion of Australians aged 18 years and over with a job remained stable between early-April (63.4 per cent) and mid-May (63.2 per cent);

Approximately three in four Australians (73 per cent) who applied for early access to their superannuation had received the money by mid-May;

Current job status

The survey found that the proportion of people reporting they had a job was at a similar level in mid-May (63.2 per cent) as in early-April (63.4 per cent). The proportion of people indicating that they had worked paid hours increased slightly over the same period, from 55.8 per cent in early-April to 58.7 per cent in mid-May, however this increase was not statistically significant. The proportion of Australians aged 18 years and over with a job remained stable between early-April (63.4 per cent) and mid-May (63.2 per cent);

JobKeeper

Respondents were asked if they were eligible to receive a fortnightly payment of $1,500 from their employer, as part of the JobKeeper Payment.

Of persons aged 18 years and over who had a job in mid-May: One in five (20 per cent) said they were eligible to receive the fortnightly JobKeeper payment; A further 7 per cent did not know whether they were eligible for the payment; and One in eight (13 per cent) had started receiving the fortnightly JobKeeper payment.

Early Access to superannuation

The results of the survey estimated that one in twenty Australians aged 18 years and over who had superannuation applied for early access (5 per cent).

People who did not have a job in mid-May were more likely to have applied for early access to their superannuation than those who had a job (9 per cent compared with 3 per cent).

Approximately three in four (73 per cent) of those who had applied for early access to their superannuation had received the money by mid-May.

People who had applied for early access to their superannuation were asked about the ways they used or planned to use the money: 57 per cent used or planned to use the money to pay household bills, mortgage, rent and other debts; 36 per cent added or planned to add it to savings.

Payment relief due to COVID-19

The survey asked Australians aged 18 years or over whether they or anyone else in their household received any payment relief due to COVID-19. This includes deferred or reduced mortgage repayments, rental payments, credit card repayments, bill/rate payments, and other loan repayments.

One in fifteen Australians (7 per cent) reported that one or more people in their household received at least one type of payment relief due to COVID-19.

Persons living in a home owned with a mortgage were more likely to report that one or more people within their household had received at least one type of payment relief (12 per cent), than persons living in a home owned outright (3 per cent) and those renting (4 per cent).

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Economic Insights. Biggest fall in personal loans on record

What is the importance of the economic data?

Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

The Australian Prudential Regulation Authority (APRA) provides data from Authorised deposit-taking institutions on a monthly basis. The data highlights trends in deposits and loans in the economy.

The Australian Bureau of Statistics (ABS) is providing weekly updates on the coronavirus impacts on job situation, health services, health precautions, social distancing, household stressors, support network, lifestyle changes.

The motor vehicle census is conducted annually by the ABS. The data is useful to glean prospects for auto-dependent sectors.

What are the implications for investors? With the Reserve Bank effectively acting as a backstop to the financial system during the virus crisis - through its

bond buying program - money supply accelerated in April. The annual growth rate of broad money supply was the strongest in over a decade.

Aussie financial institutions are doing their bit for ‘Team Australia’. But financial institution deposits eased in April after an initial COVID-19 induced surge in March - reflecting the early days of the operation of the Reserve Bank’s stimulus measures. But it is hoped that these measures will save many viable Aussie businesses, enabling them to eventually get back on their feet.

Business investment is vital to the economic recovery, but governments’ can play their part by making Australia an attractive place to do business through much needed microeconomic and taxation reforms. Australia’s endless bureaucracy and red tape needs to be peeled back to make it more efficient for the private sector to operate and grow when the eventual recovery gains momentum.

Ryan Felsman, Senior Economist, CommSec Twitter: @CommSec