Will it be a black Christmas?

Dun & Bradstreet, the collections agency, has released a new consumer survey suggesting that the forthcoming Christmas will be a dour one. According to the survey:

…which focuses on Australians’ expectations for savings, credit usage, spending and debt performance, also found that only 20 per cent planned to apply for new credit, down from a peak of 33 per cent in mid 2009.

In addition, the number of consumers applying for a credit limit increase has halved since the beginning of last year.

This correlates with findings that many consumers will avoid holiday spending altogether, with more than half saying they had no plans to make a major purchase over the next three months. Of those planning a major purchase, 82 per cent said they would use their savings.

Significantly, the survey recorded a 25 per cent fall in the proportion of consumers anticipating having extra money in the lead up to Christmas. These expectations are flowing directly through to behaviour with more than a quarter saying they would either pay down debt or increase savings, while only 5 per cent said they would spend or invest it.

“This does not bode well for key sectors like retail and tourism that are already experiencing an otherwise dismal year. At this stage it is doubtful whether consumers will deliver as expected this Christmas.”

Additional expense payment methods December quarter

The full survey is provided below.

This will not be news to anyone. I would like to say that I disagree and, indeed, all things being equal, would do so. There is some new momentum in business and consumer borrowing. As described yesterday, car sales are going along OK and the borrowing underpinning the decent run is close to a record. We have also seen new momentum in retail sales in the past few months. Nothing like the old days but enough to suggest that the shift to neutral interest rates was working its magic since July:

The same lift in conditions was apparent in the October NAB survey:

However, the macro data shows pretty clearly that this has largely been funded out of savings, not increased debt. Nor is confidence exactly booming. It leapt in September but stalled one month later, and remains very subdued:

That, of course brings us to another factor that may work in favour of a decent Christmas sales period, more rate cuts. There is the chance of a rate cut (or two) aiding sales in the lead up to Christmas, but as today’s Minutes show, the reason behind such a cut will be increasing instability offshore. In that event, my bet is rate cuts would simply stimulate greater deleveraging, not more spending.

Ironically, a better outcome for retail might be stabilisation of global markets and no rate cut. That’s my best case. I put the odds at 1 in 3. The greater likelihood is more trouble emanating from Europe and China and rate cut in December.

There was another story in the SMH this morning that may have some bearing on this equation too:

NEW lending to business has jumped to levels not seen since the global financial crisis, fuelling predictions that small to medium-sized companies are bolstering their investment plans in response to the mining boom.

Commercial finance commitments surged 7.9 per cent in August to a three-year high of more than $34 billion, the highest since June 2008, the Australian Bureau of Statistics said yesterday.

Although credit growth remains slow by historical standards, the second monthly rise in a row suggests a slump in business borrowing may have bottomed in recent months.

In another sign demand for credit could be rebuilding, personal finance lending jumped by 2.2 per cent to $7.2 billion, its highest since November last year.

Total lending commitments, including housing loans, rose 5.2 per cent to a 23-month high of $57 billion.

Nomura chief economist Stephen Roberts said the rise in business borrowing suggested the mining boom was starting to flow through to small and medium-sized companies.

”Credit growth so far has been somewhat soft, but these sorts of finance figures suggest it’s going to build up,” Mr Roberts said.

I reported the same data yesterday and it’s true that business lending is picking up. However, as I said yesterday, the personal lending boost is based exclusively around cars. Housing loans growth is purely in refinancing. Rather than stimulate confidence in me, the SMH report makes me wonder if businesses may be misreading the economy. The danger is we’ll build inventories just as we head into a still difficult Christmas.

Consumers Cautious Heading Into Christmas