RTGS payments pulse loses momentum

Ian Rogers

The aggregate value of ‘real-time gross settlements’ passing through Reserve Bank payments systems is looking crook. At the end of July RTGS values were at the series lowest ebb since early 2019 and showing signs things will worsen.

And private sector punditry on the ebb and flow of payments and spending is painting a picture of an economy supremely dependent on income support and the raiding of retirement savings.

With the Melbourne malaise smashing business and consumer confidence pretty much Australia-wide, the federal government yesterday overhauled economic forecasts updated in the Economic Statement only two weeks ago.

The effective unemployment rate will be around 13 per cent and the Australian recession of the 2020s is much, much worse than that of the early 1990s, a time when those behind Banking Day learned our trade.

In July, the daily average total value of RTGS payments was A$195 billion, a fall of $29 billion, or 13 per cent in one month. This number is around the same as in February 2019.

One twist in the RTGS series is that the RBA releases the data very early in the month and totals this payments pulse for the month just gone, unlike the delay in many related payments series (with these data sets released today).

It’s not all real economy in the RTGS total, but consumer and business payments and governments transfers are all in there, alongside capital market noise (lots at times, such as in March when the bond market recoiled in the early days of the crisis, and not so much recently as the cash markets turn more fluid and less animated).

In the last crisis, the GFC (now 12 years ago), the RTGS volumes tanked in November 2008, wandering for months, then years. The robust aggregates each average day that are now the benchmark ($200 billion plus) became a staple of this series in late 2018.

Alex Joiner, chief economist of IFM Investors, told Banking Day he interpreted the slump in the RTGS as many business “delaying payments.

“I suggest this highlights to users of the data how much pressure the business sector is under,” he said.

“The recent ABS business indicators survey on the impact of Covid shows one in six business changing payments methods.

“As businesses are not transacting, they do not need to source supplies.

“This is a recession like no other, twice as deep as the 1990s recession and will go 1.5 times as long,” Joiner said.

Complementing the RBA RTGS data are competing, rapid-fire insights from illion and Westpac.

The illion data, in their words, “confirmed that spending continues to rise to 15 per cent above pre-crisis levels, driven by the massive cash flow impact of early withdrawal of up to $10,000 in superannuation money and the impact of $750 Stimulus payments.”

illion said the new data – covering 20-26 July – “has revealed that almost all of the growth in spending above normal levels is still due to Stimulus and Super. When those who were eligible for the Stimulus and received Super were removed from the sample, average spending was 5 per cent above normal levels.”

Victoria’s spending “remains well below other states, around 16 per cent below NSW.”

And, with even more recent data on payments patterns, the Westpac Card
Tracker Index “dropped to 95.6 for the week ended August 1,” the lowest weekly read since mid-June, the bank’s economist Matthew Hassan said.

“The weakening over the last two weeks of July follows a robust recovery through May-June, which saw index reads in the 95-100 range, and a sustained period of reads above 100 through late June and the first few weeks of July.

“The slowdown clearly relates to the ‘second wave’ COVID-19 outbreak concentrated in Victoria,” the Westpac index explains.

The latest data captures the initial impact of the move to Stage 3 restrictions in Melbourne but predates the move to Stage 4 announced on August 3.

Discretionary categories have seen the most significant slowdown.