Winter chills hit spending
Commonwealth Bank Business Sales Index

Economy-wide spending stalled in June. The Commonwealth Bank Business Sales Indicator (BSI) was broadly flat in trend terms – the weakest monthly growth rate in over two years. Spending growth has decelerated for four consecutive months and is below the 0.4 per cent long-term average monthly growth pace.

The annual trend sales growth fell from 4.6 per cent to 4.1 per cent – the slowest rate in 19 months and below the 5.5 per cent long-term average growth pace.

The more volatile seasonally-adjusted measure of the BSI fell by 1.1 per cent in June – the first decline in six months.

At a sectoral level, 11 of 19 industry sectors rose in trend terms in June, with one sector broadly flat. In May, 11 of the 19 sectors also posted gains in sales.

Spending rose in four states and territories in June. The strongest gains were recorded in Victoria and Tasmania (both up 0.4 per cent), but spending fell most in Western Australia (down 0.2 per cent).

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?

Economy-wide spending was broadly flat in June. Spending decelerated for a fourth consecutive month, vindicating the Reserve Bank’s decision to cut the cash rate for the first time in almost three years on June 4.

Consumer caution and the onset of cold and wet weather appeared to discourage Aussies from venturing out to the footy, cinema, theatre and music concerts. And ‘Auto Alley’ remained in the doldrums with car sales down.

Slow wages growth, elevated mortgage debt and growing worries about job security are restraining spending. But household budgets have been boosted by a reduction in mortgage rates, improving borrowers’ cashflow. And tax relief is on the way for Aussies following the passing of legislated income tax cuts by Federal Parliament in July, boosting consumer purchasing power.

What does the data show?

The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending was broadly flat in trend terms in June – the weakest monthly growth rate since February 2017.

Over the period from October 2017 to January 2018 the BSI consistently recorded monthly gains of around 0.8 per cent. Growth in sales trended down over 2018, reaching 0.2 per cent in October. Monthly growth rates lifted from December and gains held between 0.4-0.5 per cent per month to March, marginally above the long-term average pace of 0.4 per cent. Spending growth has since decelerated for four consecutive months.

The annual trend sales growth fell from 4.6 per cent to 4.1 per cent – the slowest rate in 19 months and below the 5.5 per cent long-term average growth pace.

The more volatile seasonally-adjusted measure of the BSI fell by 1.1 per cent in June – the first decline in six months.

The Commonwealth Bank BSI is obtained by tracking the value of credit and debit card transactions processed through the 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 June. Amongst the biggest gains in sales were Mail Order/Telephone Order Providers (up 1.8 per cent); Utilities (up 0.6 per cent); Service Providers and Professional Services & Membership Organisations (both up 0.4 per cent). Sales fell most in Amusement &
Entertainment (down 1.2 per cent) and Clothing stores (down by 0.3 per cent).

Sales fell most in Amusement & Entertainment (down 1.2 per cent) and Automobiles & Vehicles (down by 1.0 per cent).

Sales at Retail Stores were broadly flat in June.

In annual terms in June, all but eight of the 19 industry sectors recorded gains. Spending fell by 7.4 per cent over the past year in Automobiles & Vehicles, followed by Government Services (down by 4.2 per cent), Mail Order/Telephone Order Providers (down 3.3 per cent) and Clothing Stores (down by 2.8 per cent).

At the other end of the scale, sectors with strongest annual growth in June included Transportation, Retail Stores, Airlines, Utilities and Hotels & Motels.

Spending rose in four states and territories in June. The strongest gains were recorded in Victoria and Tasmania (both up 0.4 per cent), followed by the Northern Territory (up 0.3 per cent) and South Australia (up 0.2 per cent). But spending fell most in Western Australia (down 0.2 per cent) and New South Wales (down 0.1 per cent). Spending was broadly flat in the ACT and Queensland.

In annual terms all states and territories had sales above a year ago except the Northern Territory (down 4.8 per cent). The strongest growth was in Tasmania (up 6.2 per cent) and Victoria (up 5.1 per cent). But annual sales growth in South Australia (up 1.9 per cent), Western Australia and Queensland (both up 3.9 per cent) all lagged.

What is the importance of the report?

The Commonwealth Bank releases its Business Sales Index (BSI) around the 20th each month. The data provides a broader perspective of consumer spending. The BSI includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes & restaurants. But it 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?

Both consumer and business sentiment have been choppy in recent months, but combined stimulus from interest rate and tax cuts are expected to boost spending in the coming months. Department stores, clothing retailers, cafés, restaurants, travel agencies and airlines are all likely to benefit from increased spending.

The Reserve Bank has since cut the cash rate for a second successive month in July – for the first time in seven years – in an attempt to erode spare capacity in the labour market and reduce nemployment. If successful, a pick-up in hiring and broader economic activity is expected to spur wages and inflation growth.

The Reserve Bank is expected to ‘sit pat’ for now, assessing incoming economic data over the coming months before deciding the next move for the record-low cash rate. But the Board stands ready to act, “if needed” to support the economy and job market.

Ryan Felsman, Senior Economist, CommSec