Cautious spending patterns return: Craig James

Cautious spending patterns return: Craig James

Craig JamesDecember 7, 2020

GUEST OBSERVER

The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by just 0.1 percent in trend terms in February, the slowest growth in two years.

Spending had lifted at an unsustainable pace of 0.7-0.8 percent between September to November last year before slowing over the past three months.

Annual trend growth in sales stood at 5.0 per cent, down from 5.3 percent in January and the slowest growth pace in five months.

The more volatile seasonally adjusted BSI rose by 0.6 percent in February after falling by 0.4 percent in December and January. Annual growth stands at 4.5 percent.

At a sectoral level, 11 of the 19 industry sectors expanded in trend terms in February, down from 14 sectors in both December and January. And sales rose in five of the eight states and territories in February.

The Commonwealth Bank BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. The BSI covers spending broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines.

What does it all mean?

Spending growth looks weak, but that represents some statistical payback from above-average growth late last year. Annual growth near 5 per cent is still healthy.

Still, it does appear that consumers are cautious, reflected in recent confidence or sentiment surveys. But spending growth is solid in Tasmania due to strong tourism flows. And that strength is also represented in spending at hotels and motels across the country.

What does the data show?

Economy-wide spending slowed further in February. The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by 0.1 percent in trend terms in February after lifting 0.3 percent in January and expanding 0.5 percent in December.

Over 2016, sales lifted at a soft 0.2 per cent month pace from March to June before picking up to a monthly 0.7-0.8 per cent growth pace between September and November. Spending growth has averaged 0.4 per cent a month over the past year.

Annual trend sales growth slowed from 5.3 per cent to a 5- month low of 5.0 per cent in February.

The more volatile seasonally-adjusted BSI rose by 0.6 percent in February after falling by 0.4 per cent in December and January. Annual growth stands at 4.5 per cent.

The Commonwealth Bank BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. And in line with the practice of the Bureau of Statistics with retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. The seasonally adjusted and trend BSI results permit analysis of the broader underlying trends that may be hidden in the raw data.

Across sectors, 11 of the 19 industry sectors rose in trend terms in February. The biggest drop in sales occurred at Mail Order/Telephone Order Providers (down 0.9 percent) from Business Services (down 0.6 percent) and Retail Stores (down 0.5 percent).

On the other side of the equation, the strongest gains in sales occurred in Service Providers (up 1.4 percent) from Automobiles & Vehicles (up 1.1 percent).

Other notable trend increases in sales occurred in Hotels & Motels (up 0.9 percent) and Professional Services & Membership Organisations (up 0.6 percent).

In annual terms in February, only three of the 19 industry sectors contracted: Mail Order/Telephone Order Providers, Transportation and Retail Stores.

At the other end of the scale, sectors with strongest annual growth in February included: Hotels & Motels (up 15.1 percent), Service Providers (up 13.0 percent) and Automobiles & Vehicles (up 12.8 percent).

Across states and territories in February, sales were stronger in five states and territories. Strongest were Tasmania (up 1.1 percent), followed by Victoria (up 0.5 percent), South Australia (up 0.4 per cent), Western Australia and Northern Territory (up 0.1 percent).

Spending was flat in Queensland and sales fell 0.3 percent in NSW and fell 0.2 percent in the ACT.

Spending has consistently increased in Western Australia for 69 months, for 67 months in South Australia and for 61 months in Tasmania.

In annual terms all states and territories had sales above a year ago. Strongest growth was South Australia (up 9.0 per cent) from ACT (up 7.3 per cent), Tasmania (up 7.0 per cent), Western Australia (up 6.1 per cent), Queensland (up 5.8 per cent), NSW (up 4.5 per cent), Victoria (up 3.7 per cent) and Northern Territory (up 0.7 per cent).

What is the importance of the report?

The Commonwealth Bank releases its Business Sales Index around the 20th each month. The data provides a broader perspective of consumer spending. The Business Sales Indicator includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes & restaurants and as such is more comparable to the ABS Household Final Consumption Expenditure released on a quarterly basis.

The Business Sales Indicator also covers businesses such as airlines, car dealers and utilities such as water and electricity companies as well as motels, business, professional and government services and wholesalers.

What are the implications for interest rates and investors?

CommSec expects no change in official interest rates for the foreseeable future.

The outlook for spending remains favourable with interest rates low, rising home prices boosting wealth, wage

growth still exceeding that of prices and job ads near 5-year highs.

Click to enlarge