CommSec: Improved conditions for retailers

CBA Business Spending Index

• There appears light in the tunnel for retailers. A key measure of economy-wide spending is now edging slightly higher after contracting for most of the past year. The Commonwealth Bank Business Sales Indicator (BSI) was broadly flat in trend terms in May (actually up 0.02 per cent). Revised figures now indicate that the BSI has been flat to slightly higher from February after contracting for 14 consecutive months.
• Only four of the 20 industry sectors contracted in trend terms in May – a similar result to April – but amongst those was the large Retail stores category that accounts for 28 per cent of the index.
• The Commonwealth BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. The BSI covers spending broadlyacross the economy rather than just retail sales, including spending on automobiles, personal services and airlines.

What does it all mean?

• Business Sales were relatively flat in May, an encouraging sign following declines in recent months, according to the latest Commonwealth Bank Business Sales Indicator (BSI).
• 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 – 40 per cent of the Australian market. The BSI posted a gain of 0.02 per cent in May.
• The latest figures were a further testament to the stagnant nature of consumer spending but also revealed sectors that were actually benefiting from outside market forces.
• The Amusement & Entertainment category continued to post positive gains, as especially cold weather in May looks to have driven consumers indoors to venues including cinemas and bowling alleys. Utilities is another sector that has seen similar gains, with the weather again being the likely cause as households consume greater levels of electricity to keep warm.
• The latest results have also given more clarity on recent sales trends, following March and April which had been disrupted by events such as the extended Easter break. The trend results now show that February to April 2011 was a period of flat, to slightly firmer economy-wide spending – an important result suggesting that sales have actually been a little better than initially thought.
• Having said that the gains being witnessed are minor and it’s unlikely that the pattern will change anytime soon. Combined with the weaker economic data seen recently, we would therefore expect the Reserve Bank to remain on the interest rate sidelines.

What do the figures show?

Business Sales Indicator April 2011

• The Commonwealth Bank Business Sales Indicator (BSI) was broadly unchanged in trend terms in May (actually up0.02 per cent). As we noted last month, results for March and April are traditionally harder to analyse given changes in timing of Easter from year to year, affecting the seasonally adjusted and trend results that are produced by statistical programs. So the receipt of the May results enables greater clarity on recent sales trends.
• The trend results now show that February-April 2011 was a period of flat, to slightly firmer economy-wide spending rather than slight declines in spending. The results are encouraging given that the BSI fell in trend terms in each month of 2010.
• The Commonwealth 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 its retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. This allows analysis of the broader underlying trends that may be hidden in the raw data.
• The majority of industry sectors are still recording spending growth in trend terms. Only four of the 20 sectors reported weaker spending in trend terms in May, a similar result to both March and April.
• Amongst the sectors to record weaker growth was the largest sector – Retail stores – down by 0.3 per cent and Automobiles & Vehicles (includes services stations as well as car and boat dealers, tyre and auto parts stores) with sales down 1.0 per cent.
• The strongest lift in spending in trend terms was by Amusement & Entertainment (includes motion picture theatres, bowling alleys, golf courses and video stores), up 1.4 per cent, followed by both Contracted Services (includes building trades such as electricians as well as veterinary services) and Utilities (both up 0.9 per cent) and Repair Services and Personal Service Providers (both up 0.5 per cent).
• In annual terms, five of the 20 industry sectors contracted in May, up from four sectors in April. The weakest sector was Mail Order and Telephone Order Providers (down 6.9 per cent on a year earlier), followed by Automobile & Vehicles (down by 6.3 per cent) and Miscellaneous Stores (down 4.5 per cent).
• At the other end of the scale, spending at Contracted Services was strongest, (up 14.1 per cent), followed by Amusement & Entertainment (up 12.3 per cent) and Professional Services & Membership Organisations, (up by8.2 per cent).
• Six of the states and territories recorded weaker sales in trend terms in May, up from five in April. The weakest result was in NSW (down 1.9 per cent), followed by South Australia (down 1.2 per cent), Northern Territory (down0.6 per cent), Victoria (down 0.4 per cent) and Western Australia and Queensland (both down 0.3 per cent). Of the other states and territories, strongest was ACT (up 0.8 per cent), followed by Tasmania (up 0.1 per cent).• The ACT has shown been consistent growth over the past eight months. In contrast, sales in South Australia have consistently softened over the period with the rate of decline accelerating over the past three months.
• In annual terms, only the ACT is recording growth (up 2.3 per cent), with Western Australia and Tasmania next best (both down 2.4 per cent).

What is the importance of the economic data?

• The Commonwealth Bank Business Sales Indicator is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities throughout Australia. The Business Sales Indicator is compiled monthly and covers 20 industry sectors and all Australian states and territories.
• 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 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.