July sales signal turning point for retailers
After six months of decline, spending across the economy was flat in July, according to the latest Commonwealth Bank Business Sales Indicator (BSI)(i).
During July, the BSI, which tracks the value of credit and debit card transactions processed through Commonwealth Bank point-of-sale terminals, was broadly unchanged in trend terms. In annual growth terms, the BSI was sharply lower than a year ago slowing to 1.5 per cent, the biggest annual decline in six years.
According to Executive General Manager of Corporate Financial Services at the Commonwealth Bank, Symon Brewis-Weston, the latest figures, while not a stunning result, signal a turning point for retail conditions.
“There appears to be light at the end of the tunnel for retailers. The improvement in spending, the best result recorded since December last year, indicates we are on the cusp of a stronger second half."
“While there are signs of improvement consumers are still erring on the side of caution and business investment remains subdued. We’re yet to see consumer confidence translate into expenditure but if conditions continue we should be see an upturn toward the end of the year,” said Mr Brewis-Weston.
Craig James, Chief Economist of the Bank’s subsidiary CommSec and author of the BSI, said that further improvement in retail conditions would depend on underlying market fundamentals remaining strong.
"Stability in interest rate settings over the next few months together with a firm job market are prerequisites for a continued recovery of consumer spending over the remainder of 2010 and into 2011."
"At this stage we wouldn't be getting hopes up, but the data points to some stabilisation of consumer and business spending after recent trend declines," said Mr James.
Industry analysis – consumers focus on the essentials
Of the 20 industries tracked in the BSI, spending was strongest in the utilities sector, rising 1.6 per cent over the month of July (in trend terms). Spending has lifted at personal service providers since April and continued to grow in July, increasing by 1.2 per cent over the month.
|Personal service providers|
The weakest sectors in July were automobiles and vehicles, down 1.5 per cent in trend terms, followed by mail order and telephone order providers, down 1.3 per cent and retail stores, down 1.2 per cent. The weakness in retail stores has prevailed throughout 2010.
State/Territory Analysis – spending in Northern Territory strongest
The BSI found that five of the eight states and territories recorded a fall in sales in July. Spending was weakest in Western Australia, down 0.7 per cent, followed by Victoria down 0.4 per cent for the month. In annual terms, spending in Queensland has continued to fall and is down 5.4 per cent for the year, while the ACT (up 3.3 per cent) and the Northern Territory (up 2.2 per cent) have shown the strongest growth.
Mr James commented on Queensland’s continued sluggish conditions: "Queensland remains a concern with spending still falling in trend terms and down markedly compared with a year ago. It appears that the downturn in tourism is hitting the Sunshine State to a greater extent than other states and territories.
"In contrast to Queensland, spending growth is in far stronger shape in the Top End with spending in the Northern Territory rising over both the month and the year, supported by a strong job market and rising property prices," 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
- The Business Sales Indicator includes industry sectors based on international Merchant Category Code