Flat retail sales add weight to rate-rise pause
19 March 2010: Australian retail sales remained relatively flat over the month of February, according to the latest Commonwealth Bank Business Sales Indicator (BSI)(i).
The BSI, which tracks the value of credit and debit card transactions processed through Commonwealth Bank point-of-sale terminals, rose by 0.1 per cent (in trend terms) over the month of February, after a flat result in January. When compared to a year earlier, retail sales are up by 4.4 per cent.
According to Executive General Manager of Local Business Banking at the Commonwealth Bank, Symon Brewis-Weston, the soft retail figures suggest consumers are still cautious, which puts further pressure on the Reserve Bank of Australia to leave interest rates unchanged in April.
“The latest data suggests that consumers and business owners are still playing it safe when it comes to spending as the effects of rising interest rates take their toll. Given that more rises are expected, we’d anticipate seeing a slide in retail sales over coming months.”
Craig James, Chief Economist of the Bank’s broking subsidiary CommSec and author of the BSI, said although levels of consumer and business confidence are a lot higher than they were a year ago, this doesn’t seem to be translating into improved retail conditions which suggest rates may not rise next month.
“At the Commonwealth Bank, we’re predicting the Reserve Bank will keep interest rates on hold in April. This move would be supported by the BSI, which only shows a slight uplift in sales, but nothing to get excited about. Until we start seeing a marked improvement in consumer spending, the Reserve Bank would be wise to tread very carefully when it makes its next interest rate decision in April.”
Industry Analysis – Personal Service Providers rebound
Of the 20 industries tracked in the BSI, spending was strongest in the service providers sector, increasing 1.8 per cent over the month of February (in trend terms), followed by personal service providers.
Personal Service Providers
According to Mr James, the solid increase in spending at personal service providers confirms that we are spending more on ourselves to look and feel better.
“The personal service providers’ category includes hairdressers, spas and beauty salons. Interestingly, while these creature comfort activities are popular at the moment, actual physical luxuries like jewellery, flowers and cameras are not. In part, the pick-up in the sector may be driven by an improvement in the job market, as applicants try to present themselves in the best possible light."
State/Territory Analysis – Victoria eases again
The BSI found that all states and territories recorded a lift in sales in February, apart from Victoria where spending eased by 0.2 per cent. This was the fourth consecutive monthly decline for Victoria. Spending was strongest in Western Australia, recording a lift of 0.7 per cent, with the Australian Capital Territory and Queensland both recording gains of 0.5 per cent.
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i. About the Commonwealth Bank Business Sales Indicator
- The Business Sales Indicator is calculated by tracking credit and debit card transactions processed through Commonwealth Bank merchant facilities throughout Australia (approximately 30 – 40 per cent of market).
- The Business Sales Indicator has been devised to provide a monthly assessment of spending trends in the Australian economy and is available to the public on the Bank’s website and to the media on or around the 20th day of each month.
- Currently, the main monthly indicator of spending in the economy is the Australian Bureau of Statistics’ (ABS) Retail Trade release. The main quarterly indicator of spending in the economy is the ABS Household Final Consumption Expenditure (HFCE). A quarterly measure of the Business Sales Indicator has closely tracked the ABS household consumption series over the past three years, highlighting the value of the Business Sales Indicator to track changes in spending across the economy. The Business Sales Indicator is available monthly; broader household consumption figures are only available from the ABS on a quarterly basis.
- The Business Sales Indicator includes industry sectors based on international Merchant Category Code (MCC) categories.