Tag: #strategy # consumption

The key chart

The key message

Strip out seasonal effects and the “steady recovery” story for UK consumption remains on track.

The behaviour of UK households (HH) reached an important inflexion point in early 4Q21. The year also ended with monthly HH deposit flows, a useful proxy for uncertainty levels, falling to 0.6x pre-pandemic levels and improving monthly and quarterly consumer credit trends. Positive news.

So-called “faster indicators” for estimating credit and debit card payments indicate weakness in spending at the start of the 2022. The ONS suggests that these trends were consistent with seasonal effects, however. Spending has recovered more recently with “aggregate” and “social” payments slightly below pre-pandemic levels and “staples” and “work-related” payments both above.

Payments on durable items, such as clothing and furniture, remain below pre-pandemic levels. This matters because payments on these items represent the best proxy for a more sustained recovery in UK consumption and a return of some of the c£162bn excess savings built up during the pandemic to more productive use.

In short, the message from the money sector is one of a steady rather than a dramatic recover in UK consumption so far…

Steady as she goes II – six charts that matter

In early December 2021, I argued that the behaviour of UK HHs had reached a potentially important inflexion point at the start off the 4Q21. Monthly money flows (a proxy for HH uncertainty) had moderated sharply (see chart above) and monthly consumer credit flows had reached new YTD highs. I also warned, however, that the emergence of the omicron variant and renewed restrictions might result in “these points being missed, or worse still, reversed”.

The year actually ended on a relatively positive note. Monthly HH deposit flows dropped to £2.7bn, 0.6x their pre-pandemic levels (see first chart in this section above). Monthly consumer credit flows remained at c£1bn in the last three months of 2021 (see chart above), delivering the largest quarterly flows since the pandemic hit the UK economy (see chart below). Of course, the YoY growth rate in consumer credit of 1.4% YoY remains relatively modest in relation to past trends and negative in real terms.

So-called “faster-indicators” for estimating UK spending on credit and debit cards point to volatility/weakness in consumer spending at the start of 2022.

Aggregate card payments fell from 130% of their pre-pandemic levels on Christmas Eve 2021 to 75% on the 4^th January 2022. Since then they have recovered steadily to 96% of their pre-pandemic levels by 3^rd February 2022 (see chart above). The ONS suggests that observed trends are consistent with seasonal effects.

“Aggregate” and “social” payments have recovered, but remain slightly below pre-pandemic levels as of early February 2022. “Staples” and “work-related” payments have recovered the most and are both above their respective pre-pandemic levels (see chart above). The chart illustates the difference between current payments and average payment levels in February 2020 in percentage points.

Payments on durable items, such as clothing and furniture, remain below pre-pandemic levels (see chart above). This matters because payments on these items represent the best proxy for a more sustained recovery in UK consumption and a return of some of the c£162bn excess savings built up during the pandemic to more productive use.

Conclusion

In short, the message from the money sector is one of a steady rather than a dramatic recover in UK consumption so far…

Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.

The key chart

The key message

Are UK consumers merely forming orderly queues or is the recovery in consumption stalling already?

Aggregate card purchases have fallen back from the recent peak of 106% pre-COVID spending (5 May 2021) to 90% pre-Covid spending according to the latest ONS “experimental faster indicators“.

Spending across all categories is higher than at the start of the year although aggregate, delayable and social spending all remain below pre-Covid levels. With the exception of staples, all consumption categories have seen an increase in spending since the period before restrictions on the opening of non-essential stores were eased on 12 April. The largest increases over this period have been in work-related (25ppt) and delayable spending (22pt).

Spending on delayable goods (eg, clothing, furniture) is a useful indicator regarding the extent to which the £160bn in excess savings built up during the pandemic is returning to the economy via consumption. These purchases recovered strongly to reach a YTD high of 122% pre-COVID spending on 19 April. Momentum has slowed since then, however, with the latest data indicating delayable spending at only 84% of pre-COVID levels.

As before, the ONS’ real time indicators continue to a point to a steady recovery in UK credit and debit card purchases. At the same time, they are likely to disappoint those hoping for a more rapid recovery in consumption. As equity markets have transitioned from their “hope” to “growth” phases, much of the expected future growth in cash flows has been paid for already. A next leg may require more concrete evidence of sustained growth in consumption.

Forming an orderly queue…?

Aggregate card purchases in the UK have fallen back from their 5 May 2021 peak of 106% pre-COVID spending to 90% in the week to 17 June 2021 (see key chart above). All spending categories with the exception of “work-related” spending decreased over the latest weekly period. The data series shown here is part of the ONS’ “experimental faster indicators” for estimating UK spending on credit and debit cards, which track daily CHAPS payments by credit and debt card payment processors to around 100 major UK retail outlets.

Spending across all categories (delayable, social, staple, and work-related) is higher than at the start of the year. The largest increases in spending have been in work-related (57ppt), social (34ppt) and delayable (30ppt) goods. Aggregate, delayable and social spending all remain below pre-COVID levels, however (see chart above).

With the exception of staples, all consumption categories have seen an increase in spending since the period before restrictions on the opening of non-essential stores were eased on 12 April (see chart above). The largest increases over this period have been in work-related (25ppt) and delayable spending (22pt).

Conclusion

As before, the ONS’ real time indicators continue to a point to a steady recovery in UK credit and debit card purchases. At the same time, they are likely to disappoint those hoping for a more rapid recovery in UK consumption.

In May, I suggested that, “As equity markets transition between their “hope” and “growth” phases, investors who have already paid for expected future growth may well pause at this stage and wait for more concrete evidence of a sustained recovery”. The UK narrative remains the same.

The key chart

The key message

In my previous post, “More bullish on UK consumption”, I highlighted potentially good news for UK suppliers of consumer durables. The latest data on UK spending on credit and debit cards provides further support.

At the end of 1Q21, credit and debit card purchases of so-called “delayable” goods were still 31% below the average levels recorded in February 2020 (“pre-COVID”). These purchases recovered strongly in April, however, following the reopening of non-essential retail stores (12 April) and ended the month 6% above pre-COVID levels. Aggregate credit and debit purchases also recovered last month but remain marginally below pre-COVID levels due to the on-going weakness in “social” spending.

A recovery in consumer credit is one of three key signals to watch in the 2021 messages from the money sector.  March 2021 data provided only tentative encouragement in terms of the direction of travel, but April’s trends in so-called “faster indicators” may be the start of more substantive support…

Bashing the plastic

In my previous post, “More bullish on UK consumption”, I highlighted potentially good news for UK suppliers of consumer durables. I quantified the level of excess money holdings that UK households have accumulated during the COVID-19 and the potential spending boost in 2H21 and 1H21. I argued that:

“it is reasonable to assume that a large proportion of this will be directed towards durable goods whose consumption was delayed during lockdown.”

The latest data on UK spending on credit and debit cards provides further support. The ONS provides this data based on daily Clearing House Automated Payment System (CHAPS) payments at around 100 major retail companies. Companies are allocated to one of four categories based on their primary business:

• “Staples”: companies that sell essential goods such as food and utilities
• “Work-related”: companies providing public transport or selling petrol
• “Delayable”: companies selling goods whose purchased could be delayed such as clothing or furnishings
• “Social”: spending on travel and eating out

At the end of 1Q21, credit and debit card purchases of so-called “delayable” goods were still 31% below the average levels recorded in February 2020 (“pre-COVID”). The chart above illustrates the backward looking, seven day rolling average of purchases. Lockdown restrictions had a clear, negative impact on delayable goods purchases in 2Q20 and 1Q21. Aggregate credit and debit card purchases were also 13% below pre-COVID levels at the end of 1Q21, supported only by spending on “staples”.

These purchases recovered strongly in April, however, following the reopening of non-essential retail stores (12 April) and ended the month 6% above pre-COVID levels (see chart above). Aggregate credit and debit purchases also recovered last month but remain marginally below pre-COVID levels due to the on-going weakness in “social” spending (see chart below).

Conclusion

A recovery in consumer credit is one of three key signals to watch in the 2021 messages from the money sector.  March 2021 data provided only tentative encouragement in terms of the direction of travel, but April’s trends in so-called “faster indicators” may be the start of more substantive support…

Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.