The key chart
Change (ppt) in credit and debt card spending versus February 2020 levels (Source: ONS; CMMP)
The key message
Investment narratives, like endurance athletes, require consistent refuelling to sustain their performance particularly as they transition between phases in market cycles. It may take some time before the three key signals for 2021 – a moderation in household savings, a recovery in consumer credit, and a re-synching of money and credit cycles – provide sustained nourishment. In the meantime, so-called “faster indicators” such as estimates for UK spending on credit and debit cards take on greater prominence.
These indicators show a steady increase in spending since the start of the year led by a recovery in spending at stores selling “work-related” and “delayable” goods and services. The latest data release from the ONS (27 May 2020) indicates a loss of momentum in this recovery, however, particularly in the case of delayable goods. With the exception of spending on “staples”, credit and debit card purchases have fallen back/remain below their pre-COVID levels.
The risk with volatile data series (such as faster indicators) is that short term “sugar rushes” are mistaken for more sustainable nourishment. The direction of travel is clearly positive but the recovery in UK consumption remains tentative still. As equity markets transition between their “hope” and “growth” phases, investors who have already paid for expected future growth in cash flows may well pause at this stage and wait for more concrete evidence of sustained growth…
Sugar rushes vs sustained nourishment
UK spending on debit and credit cards has increased steadily since the start of the year led by a recovery in “work-related” and “delayable” spending. In the week to 20 May 2021, the aggregate CHAPS-based indicator of credit and debit card purchases was at 96% of its pre-COVID, February 2020 average. This represents a 31ppt increase since early January 2021. The largest increases in spending over this period have been seen in “work-related” spending (eg, public transport, petrol) which has risen 45ppt and in “delayable” spending (eg, clothing, furnishings) which has risen 41ppt (see chart above).
The latest data release from the ONS (27 May 2021) indicates a loss of momentum in this recovery, however, particularly in the case of delayable goods. Aggregate spending peaked at 106% of February 2020 levels in the week to 5 May 2021 and has fallen back to 96% in the week to 20 May 2021. Spending on delayable goods rose sharply in April following the reopening of non-essential retail stores (12 April 2021). In the following week, spending was 22ppt above the February 2020 levels and remained above them until the week to 11 May 2021. Since then, it have fall back to 94% in the week to 20 May 2021.
With the exception of spending on “staples”, purchases have fallen back/remain below their pre-COVID levels. Other data sources (eg, Barclaycard payments data) indicate an immediate boost in spending in the hospitality sector following the relaxation of lockdown restrictions on 17 May 2021 but these trends are only partially captured here and social spending remained 16ppt below February 2020 levels in the week to 20 May 2021. Aggregate, delayable and work-related spending remain 4ppt, 6ppt and 1ppt below February 2020 levels respectively.
Conclusion
The risk with volatile data series (such as faster indicators) is that short term “sugar rushes” are mistaken for more sustainable trends. The direction of travel is clearly positive but the recovery in UK consumption remains tentative still. As equity markets transition between their “hope” and “growth” phases, investors who have already paid for expected future growth in cash flows may well pause at this stage and wait for more concrete evidence of sustained growth…
Please note that the summary comments and charts above are extracts from more detailed analysis that is available separately.