Spending posts first gain in nine months
20 September 2010: Spending across the economy increased over the month of August, according to the latest Commonwealth Bank Business Sales Indicator (BSI)(i).
During August, 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, the first positive reading since November last year. Despite the month on month improvement, in annual growth terms the BSI declined by 2.7 per cent, the biggest annual decline since data was first collected six years ago.
According to Matt Comyn, Executive General Manager, Local Business Banking, Commonwealth Bank, the rise in spending suggests that consumers are slightly more confident due to stronger underlying market fundamentals, but it’s not cause for celebration.
“The latest data is encouraging and reflects renewed confidence in the overall domestic economy, buoyed by stable interest rates, a firmer labour market and increased wages. That said, the runs aren’t on the board yet, so it would be premature to signal that the spending slowdown is over,” said Mr Comyn.
Craig James, Chief Economist of the Bank’s broking subsidiary CommSec and author of the BSI, said the latest spending figures are a move in the right direction and shouldn’t be ignored by the Reserve Bank of Australia.
“The longer the Reserve Bank keeps interest rates on hold, the moreconfident consumers will become about opening their wallets. The RBA would need solid justification from a higher inflation reading to lift rates in the next few months.
“Provided interest rate settings remain unchanged, the outlook for spending is quite positive. The jobs market is in good shape, wealth is at record highs, businesses are discounting to move stock and confidence remains at high levels. But consumers and businesses are still very conservative, preferring to save rather than spend,” said Mr James.
Industry analysis – more sectors seeing an improvement
Of the 20 industries tracked in the BSI, the value of spending transactions fell in five of the 20 industries in August, an improvement on July when six sectors went backwards.
Spending was strongest in the utilities and professional services sectors. A sustained improvement has been seen in the hotels and motels sector, which has experienced growth for seven consecutive months.
“Fewer industries are recording weaker spending growth, suggesting that a broad scale improvement in conditions is underway. However it is always a question of what role prices are playing. Lower prices are probably weighing on clothing sales while higher prices are probably boosting sales at utilities companies,” said Mr James.
|Hotels and motels|
The weakest sectors in August were retail stores, down 1.7 per cent, followed by mail order and telephone order providers, down 1.6 per cent.
State/Territory analysis – NSW boosted by improved jobs market
The BSI found that two of the eight states and territories recorded a fall in sales in August, an improvement on last month when five of the eight recorded a decline. Spending was strongest in the Northern Territory, Western Australia and New South Wales (up 0.5 per cent). Spending declined in Victoria (down 0.2 per cent) and the Australian Capital Territory (down 0.1 per cent).
“The firm labour market points to higher spending ahead and that certainly appears to be providing good support in the NT, WA and NSW. Of particular interest is the increase in NSW which led the job gains across the states and territories in the three months to August. No doubt the improvement in employment conditions bodes well for consumer spending in coming months,” said Mr James.
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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.