21st August 2012
Spending slides as consumers return to conservative ways
Economy-wide spending slumped in July, reversing gains previously witnessed in May and June, according to our latest Business Sales Indicator (BSI), announced on 20 August 2012.
Key insights included:
- Business Sales Indicator (BSI) falls by 5.4 per cent in seasonally adjusted terms in July
- Despite fall, spending still remains up 4.7 per cent on one year ago in seasonally adjusted terms
- Mail Order & Telephone Providers, Service Providers and Wholesale Distributors & Manufacturers amongst positive gains; Automobile & Vehicles and Transportation down
- Spending in VIC and NSW falls in July; all other States increase
The BSI* is a key measure of economy-wide spending, tracking the value of credit and debit card transactions processed through Commonwealth Bank point-of-sale terminals, a sample of approximately 30 per cent of the Australian market. The BSI fell by 5.4 per cent in seasonally adjusted terms in July, following a 3.1 per cent gain in June and 1.7 per cent in May.
According to Gary McGrath, Acting Executive General Manager for Local Business Banking, Commonwealth Bank, the latest figures were a disappointing result for Australian businesses, which had been witnessing sustained levels of positive spending performance.
“It’s definitely a blow to businesses which, in the past couple of months in particular, had been the beneficiaries of greater levels of consumer spending thanks to a number of positive economic announcements,” said Mr McGrath.
“The turnaround we have witnessed here simply reinforces the consumer we are dealing with today; that is, one who is far more cautious when it comes to how they spend their money and who is quite happy to hold on to their cash. It is clear that whilst favourable market events such as stimulus measures can provide a welcome boost to spending, the underlying consumer attitude is not going to change overnight or even in a matter of months. To achieve a longer-term behavioural shift we will need to see continued positive news and on a much larger scale.”
Craig James, Chief Economist of the Bank’s broking subsidiary CommSec and author of the BSI, said the trend figure for July also reinforced the slowdown being witnessed in economy-wide spending.
“In trend terms, the picture was slightly more positive with a 0.1 per cent gain in July and whilst this was the 12th consecutive increase, it was also the slowest gain since August 2011,” said Mr James.
“Although consumers have been given more reasons to spend in recent months, confidence is still the key factor at play here. With an end to the stimulus measures provided to sections of the community and the Reserve Bank holding the cash rate steady in July, we have seen consumers return to their conservative ways. This is also despite less noise coming from global markets which has been another key factor impacting the domestic market.”
Industry analysis – despite overall fall in performance sector picture remains steady
Five of the industry sectors fell in July in trend terms, a similar result to June. The strongest monthly trend increase in sales occurred in Mail Order & Telephone Order Providers (up 3.5 per cent), Service Providers (up by 3.3 per cent) and Wholesale Distributors and Manufacturers (up by 1.7 per cent). Amongst the weakest sectors in July were Automobile & Vehicles (down 0.7 per cent), Transportation (down 0.6 per cent) and Personal Service Providers (down by 0.2 per cent).
In annual terms, two of the 20 industry sectors contracted in July, a similar result to both May and June. The weakest sector was Airlines and Hotels & Motels whilst at the other end of the scale, spending was strongest at Wholesale Distributors and Manufacturers (up by 27.1 per cent), Mail Order & Telephone Order Providers (up 25.8 per cent), Service Providers (up by 24.5 per cent).
State analysis – NSW & VIC record weaker sales growth
Two of the States and Territories recorded weaker sales in trend terms in July. Sales in Victoria fell by 0.2 per cent while sales fell 0.1 per cent in NSW. The strongest results were in South Australia and the ACT (both up 0.8 per cent) followed by Northern Territory (up 0.7 per cent), Tasmania (up 0.6 per cent) and Queensland and Western Australia (both up 0.4 per cent). The trend BSI has now risen for 13 straight months in Queensland, Northern Territory and Western Australia and for 12 straight months in South Australia. After 11 straight months of gains, sales in NSW fell in July.
In annual terms, no State or Territory had sales below a year ago. Strongest growth was posted in South Australia (up 15.2 per cent), followed by ACT (up 11.2 per cent), Queensland (up 10.8 per cent) and Western Australia (up 9.1 per cent). After 22 months of declines, sales in NSW have now risen in annual terms for the past four months.
“Despite the slowing in economy-wide spending we have also witnessed recent gains in business confidence which is promising,” said Mr James. “However, businesses also continue to hold back on borrowing, signalling that they are continuing to hold fast against weaker consumer demand and tougher trading conditions.”
About the Commonwealth Bank Business Sales Indicator
- The Commonwealth Bank Business Sales Indicator is calculated by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities throughout Australia (approximately 30 per cent of the market).
- The Business Sales Indicator has been devised to provide a monthly assessment of spending trends in the Australian economy (covering 20 industry sectors and all Australian states and territories) and is available to the public on the Bank’s website and to the media on or around the 20th day of each month.
- Credit and debit card transactions can be volatile on a month-to-month basis, affected by seasonal and irregular factors. To better gauge the direction and changes of spending across the economy, the Business Sales Indicator is tracked in trend terms. The seasonally adjusted and trend estimates of the BSI results are derived via the SEASABS statistical program from the Australian Bureau of Statistics.
- The monthly Business Sales Indicator has been devised to provide a more timely assessment of spending trends in the economy. The main monthly indicator of spending in the economy is the Australian Bureau of Statistics’ (ABS) Retail Trade release. However these statistics cover just spending at retail establishments, and exclude spending at a raft of other businesses.
- 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.
- The Business Sales Indicator includes industry sectors based on the International Merchant Category Code (MCC) categories. MCC is a four-digit number assigned to a business when the business first starts accepting cards as a form of payment.