Imagine if you could see around corners, or peer through the fog. Whether metaphorically or otherwise, such an ability would make the road ahead clearer and more easily navigable.
When it comes to the economy, that ability would help investors, businesses and government make better decisions and deploy resources in a way that served their ends and stakeholders better – in both a tactical and strategic sense.
It would help reduce the friction in decision making that is being driven by the current high level of uncertainty. The uncertainty, which increasingly seems irreducible in the modern economy, is being driven by the pace of technological change, shifting customer preferences and expectations, Brexit, trade wars, the repositioning of strategic alliances and the weak global economic growth outlook.
Reducing uncertainty is exactly what the Commonwealth Bank has sought to do in building its Household Spending Intentions (HSI) series. The HSI aggregates Commonwealth Bank transaction data with Google search data via Google Trends to build a series of indicators, which look into the future of household spending.
That’s particularly important because, while Australia is in the uniquely successful position of not having experienced a recession in over 28 year, it still faces many of the same issues as other nations across the globe; Australian consumers and households face record high debt, low wages growth, and an economy where the pace of growth is well below long-run averages. All this is happening alongside a relatively unstable and weak global economic backdrop.
This all comes at a time when conventional monetary policy appears to be losing its efficacy.
In order to better understand what’s really going on now in Australia’s dominant household sector and future trends across seven key categories of spending, the Commonwealth Bank’s Global Markets Research team got together with Google to combine the size and scope of the bank’s anonymised customer data footprint with Google search enquiries – through the publicly available dataset of Google Trends – to create the HSI series.
Taken together, this brings the spending patterns of the Commonwealth Bank’s 16 million customers into a rich dataset with search enquiries to give a forward-looking estimate of where the economy is headed.
Explaining the power of this combination of data sets Commonwealth Bank Chief Economist, Michael Blythe, told an audience of around 500 corporate and finance professionals in presentations in Sydney and Melbourne recently that in the next 60 minutes 84,000 people would use aCommBank credit card and in the next 60 seconds 78,000 Google searches would occur.
Given the size and breadth of this data set, we just might be able to see around corners.
Blythe noted that actual spending is typically preceded by an intention to spend involving an internet search. Thus CommBank’s HSI generates an indicator of future spending trends by households here in Australia – a useful index across specific sectors.
It’s a genuine innovation in close to real-time economic analysis and in many ways a behavioural look under the hood of the consumer and household mood, which covers 55% of total household spending in retail, travel, education, entertainment, motor vehicles, health & fitness and home buying.
The HSI series indicates an ongoing increase in housing activity. That, in turn, “offers some hope for retailing and residential construction”, Blythe said.
Overall, Blythe noted the latest HIS series, which includes data to the end of October, “supports the RBA’s view that the economy has reached a gentle turning point”. But he added the “improvement is quite modest given the tax rebates and interest rate cuts delivered in recent months”.
That said, monetary policy has its limits, Blythe noted.
That’s especially the case given the low level of nominal interest rates, which appears to be having a counter-productive impact on consumers, households, and business. Blythe cited the recent increase in households’ negative views of the economy above those who held positive views and home loan repayment practices by CommBank customers (a little more than 60% of whom continue to pay ahead of schedule) as examples of behaviours suggesting that monetary policy has lost traction with Australian households.
And of course, there are the unintended consequences of monetary policy that look to be manifesting themselves. There has been a material reduction in earnings for household savers and a bifurcated approach to risk – with Australian households having had both a material increase in mortgage offset balances while at the same time the share of household investments in equities has increased sharply.
It’s all contributing to conventional monetary policy being near its limits of efficacy, which threatens the Reserve Bank’s desire to bring the unemployment rate down toward its measure of full employment around 4.5%. Consequently, fiscal policy needs to play a much greater role, Blythe said, with CommBank modelling suggesting there is fiscal room to move on the back of stronger surpluses than previously forecast.
But even fiscal stimulus is not going to be a panacea for the whole economy. The HSI shows the prospects for the motor vehicle industry remain problematic.
In a panel discussion following his presentation, Blythe was joined by a representative from Google, as well as the CSIRO’s Data61 and CommBank’s Head of Global Market Research Stephen Halmarick to discuss the megatrends that might be driving structural change in consumer’s buying habits. As a good example, for the auto sector this includes things like the Uber, car share services, and the trend toward transport as a service.
This is another good example showing that data and analytics can pick up movements, and shifts in consumer behaviour, which can have profound impacts on investment, business, and policy decisions. Indeed, that was the key takeaway from the panel discussion – uncertainty is difficult, but data and more importantly analytics using and overlaying the dataset, is what will empower businesses to navigate the fog of an uncertain business and economic landscape.
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