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Consumers spend as confidence returns

Consumers spend as confidence returns

Australian consumers are spending more, boosting economic activity across the states.

Record low interest rates and falling unemployment are driving increased consumer activity, according to the Commonwealth Bank’s Business Sales Indicator (BSI), with the pace of spending growth recording its strongest gain in nine months.

According to the BSI, a measure of national spending which tracks the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities over any given month, spending picked up in most industries and sales rose in six of the eight states and territories in August.  

CommSec Chief Economist Craig James said the BSI recorded a 0.6% increase in trend terms in August, after flat spending throughout the year.

"Economy-wide spending has strengthened off the back of improving business and consumer confidence, low unemployment and ongoing low interest rates,” he said.

Consumers were also coming off the sidelines now that uncertainty over the UK's vote to exit the European Union (Brexit) and the Australian Federal election result had been resolved, he added.

"The pre-conditions remain in place for firmer spending in the lead-up to Christmas.”

Economic rebound

Queensland and Victoria recorded the strongest sales growth in August (both up 0.9%), followed by South Australia (up 0.8%), NSW (up 0.5%), Western Australia (up 0.3%) and Tasmania (up 0.2%). Sales were down in the ACT (0.8%) and the Northern Territory (0.1%) for the month.

In annual terms, all states and territories recorded sales above a year ago with the biggest gains in South Australia, Tasmania and NSW, all up more than 6%.

Industry growth

Of the sectors, the biggest uptick occurred in amusement and entertainment with spending rising 1.5% in trend terms in August – the industry’s strongest gain in 16 months – after lifting by 1.4% in July. Spending in hotels and motels, and wholesale distributors and manufacturers, each rose by 0.8%.

Spending fell most in business services, with the sector's sales down 1%.

Only three of 19 industries included in the BSI contracted: airlines, transportation and automobiles and vehicles.

The findings come after the unemployment rate declined to 5.6% in August, its lowest level in three years, and the Reserve Bank of Australia (RBA) in August cut the cash rate to a record low 1.5%.

CommSec is forecasting a further cash rate cut in November if inflation continues to remain below the RBA's 2-3% target band.

This information has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker.