Consumers are spending again but for how long?

In our last News Alert, we reported that retail spending had dropped to its lowest level since the global financial crisis. Since then, consumer spending is on the up, with the strongest monthly growth in sales recorded in 18 months, according to the Commonwealth Bank’s Business Sales Indicator (BSI). Yet while the figures are promising, consumer sentiment still remains shaky.

The BSI, which follows the trends of all credit and debit card transactions processed through Commonwealth Bank merchant facilities, rose 0.5% in February, building on small gains in December and January. While the 0.9% rise for the retail sector was particularly welcome news, most sectors experienced spending growth.

Among the largest improvers were Contracted Services, with a rise of 9.3%, followed by Professional Services and Membership Organisations, up 8.6%. Repair Services and Amusement and Entertainment also performed well, recording increases of 2.2% and 1.6% respectively. Overall, the business service sector has shown consistent growth for past 13 months.

“The earlier tentative signs of improvement in spending are now being translated into firmer readings for the trend series,” said Craig James, CommSec Chief Economist.

Victoria led the way in improved consumer spending with a 0.7% rise, while South Australia and Tasmania were close behind, both rising 0.6%. ACT and NSW experienced more modest 0.4% growth, followed by Western Australia (up 0.2%) and Northern Territory (up 0.1%). Only Queensland remained flat.

But while this month’s BSI results are encouraging, business sales are still not out of the woods.

While at face value the stronger sales figures point to better times for small businesses, they’re in contrast to wider economic indicators which show an overall weakness in consumer sentiment. This could mean that consumers may remain reluctant to open their wallets, particularly for big-ticket items.

And with spending growth just starting to build momentum, the Reserve Bank is likely to be cautious about any future rate rises, which could easily tip the balance back into negative territory.

• Important information
  We believe that the information in this News Alert is correct and any opinions, conclusions or recommendations are reasonably held or made at the time of its compilation, but no warranty is made as to accuracy, reliability or completeness. To the extent permitted by law, neither Commonwealth Bank of Australia ABN 48 123 123 124 nor any of its subsidiaries accept liability to any person for loss or damage arising from the use of the articles in this News Alert. The articles have been prepared without taking into account the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this News Alert, consider the appropriateness of the information to your circumstances by considering the terms and conditions of any product or service mentioned, and if necessary, seek appropriate professional advice