The 80/20 View: In 2021, advertising is bearish when consumers are bullish – this needs to change

In his regular column for Mumbrella, Thinkerbell's general manager Ben Shepherd examines the apparent disconnect between advertisement volume and consumer behaviour.

Consumers are more confident than they have been for a long time, but you wouldn’t know it from the way advertisers in Australia are spending right now. It’s limp and bearish when the economy is increasingly robust and bullish.

Every single economic data point is telling a positive story. Especially the one that has proven over time to be a reliable measure of consumption growth, the Roy Morgan ANZ Consumer confidence index.

Confidence is the greatest influencer of positive movements in purchase volume. And in my experience increases and decreases in consumer confidence has a strong correlation with positive and negative movements in consumer demand. A three to five point movement in the consumer confidence index can create material shifts in category demand that can create tens of billions of dollars in revenue.

The reasoning is simple. When consumers are more confident, they are more comfortable spending money and borrowing money.

I’ve collated monthly consumer confidence from January 2019 through February 2021. I’ve plotted this index on the left axis below. For the same period below I collected newly established total consumer financing (ex. Refinancing and ex housing financing) by month.

What we see is a clear upswing post-COVID in borrowing. New borrowing now is at a greater level than anytime since January 2019, and we saw when COVID hit consumers closed their wallets and stopped looking to borrow, deferring new purchases.

Source: Roy Morgan Consumer Confidence Index, 2021; ABS Lending Indicators 2021

Looking at the same data, we see a reasonable relationship between consumer confidence and automotive finance. New car finance is at its highest level in the last two-and-a-half years, and at the end of 2020 was at levels 20% higher than at the beginning of 2019. This confidence is arresting a two-three year decline in new car sales and demonstrates consumer appetite for larger ticket purchases.

Source: Roy Morgan Consumer Confidence Index, 2021; ABS Lending Indicators 2021

Lastly, housing finance for February 2021 was almost 100% up on May 2020. And is up 50% on the pre-COVID levels of January and February 2020.

Source: Roy Morgan Consumer Confidence Index, 2021; ABS Lending Indicators 2021

Consumer confidence also is a very strong predictor of the movement of the ASX200 index. And right now the ASX200 index is about to eclipse its pre COVID levels from February of 2020 (which followed 14 months of single digit declines for the ASX200). Australian-based listed enterprises have recovered from COVID and are well positioned for a further bounce in 2021.

Source: Roy Morgan Consumer Confidence Index, 2021; ASX 200 index month end 2019-2021

And it has a strong correlation with discretionary retail spend too. Looking at ABS retail data for the same period, we see retail spending go up when confidence goes up, and vice versa.

So what?

Well. Right now the indicators are screaming that confidence is rocketing. Consumers are confident. They are feeling optimistic. They are not deferring purchases. They are borrowing money. They are buying shares.

And enterprise is bullish. There is a caution post COVID but valuations are moving in the right direction, and so is revenue.

And unemployment is at 5.8%, well down on the 7.8% it peaked at during COVID.

Interest rates? The cash rate is at 0.1% and has been since November. It’s 65 basis points lower than it was in February of 2020. For the average mortgage of $500,000 that puts back $2,400 into a households wallet every year. New mortgages are at levels higher than the past three years – and that excludes refinanced mortgages for people taking advantage of reduced rates.

Retail spending. Up 10.6% in January year-on-year. Up 9.1% February year-on-year.

Let’s recap.

  • Share market – recovered and back to pre-COVID levels
  • Mortgage commitments – up and significantly above pre-COVID levels
  • New car finance – up and above pre-COVID levels
  • Consumer confidence – up and above pre-COVID levels
  • Lending – up and above pre-COVID levels
  • Employment – recovered from COVID drop and on track to reach pre-COVID levels by end of year
  • Retail – up 9-10% year on year in January and February and consumers have spent an additional $6 billion in retail over the first 2 months alone.

People are spending more. Comfortable with buying more. And feeling good. The market is growing. Finally.

So why is advertising down?

It’s true. As the economy moves forward at a rate of knots – across all indicators, advertising remains bearish.

SMI numbers indicate January year on year was down 7.3%, when consumer confidence was up 2.5% for the same period. And retail was up over 10% for the same period.

SMI numbers reported suggest February 2021 was down on February 2020 by 2.6. Note, February 2020 was down on February 2019, which was down on February 2018.

For the same period consumer confidence was up 2.5% on the prior year. Retail for this period was up 9.1% year-on-year.

Source: Standard Media Index, taken from Mumbrella

So despite confidence being a reliable indicator of positive consumption movement, advertisers remain cautious despite data suggesting opportunity is presenting.

The opportunity is right now for brands looking to take advantage of this buoyancy in the economy, coupled with a lag in advertiser responsiveness. As people spend more and become more comfortable making purchases, smart organisations will look to ensure their brands are the ones that are front of mind.

The comparison of confidence across March and April when comparing 2021 to 2020 is striking. In March 2021 the consumer confidence index was up 32%. For April it’s likely it will be north of 44%.

And my predictions are May will be up 25%, June 23% and July 33% year on year when it comes to the Consumer Confidence Index.

And looking at the trend line of retail spend, it is likely non-food retail will be significantly up on the same period last year.

Will advertising follow the data or will it continue to be more timid than the consumers it seeks to influence?

For those who wait for the ad market to pick up before they react… well, it might be too late then.

Ben Shepherd is the general manager of Thinkerbell. The 80/20 View is a regular column on Mumbrella.


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