Tough trading times for business

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There was a further easing in economy-wide spending in August after temporary stimulus boosted spending in May and June.

  • After sliding 5.4 per cent in seasonally adjusted terms in July, the Commonwealth Bank Business Sales Indicator (BSI) fell a further 0.4 per cent in August.
  • The BSI had lifted 3.3 per cent in June and 1.7 per cent in May.
  • The less volatile trend estimate of spending also has slipped into negative territory, down by 0.4 per cent in August – the biggest fall in 14 months.
  • The seasonally adjusted and trend estimates of the BSI results are derived via the SEASABS statistical program from the Australian Bureau of Statistics.
  • At a sectoral level, 10 of the 20 industry sectors contracted in trend terms in August, up from seven sectors in both June and July. And three of the eight states and territories recorded weaker sales in trend terms in August, up from two in July.
  • 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 broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines.

What does it all mean?

  • While there would be some disappointment about the drop in economy-wide spending in August, it was hardly unexpected. The temporary stimulus provided by the Federal Government hands has run its immediate course and activity levels have once again fallen back to pre-stimulus levels.
  • Still, tax rates were adjusted in July and coupled with the earlier rate cuts, the changes should provide ongoing support to household incomes in coming months. In addition the job market remains tight, wage growth is exceeding growth of prices and both house prices and share prices have been moving higher. So the outlook for spending remains positive, even though business and consumer sentiment levels are still subdued.

What do the figures show?

  • The case for further monetary stimulus has been advanced after a disappointing survey of economy-wide spending. The latest Commonwealth Bank Business Sales Indicator (BSI) shows that spending fell by 0.4 per cent in seasonally adjusted terms in August after sliding 5.4 per cent in July. Spending had previously lifted by 3.3 per cent in June and 1.7 per cent in May.
  • However spending is still up 3.5 per cent on a year ago, although well down on the 10.1 per cent increase in the year to June.
  • The less volatile trend measure of economy-wide spending fell by 0.4 per cent in August, the third straight decline following downward revisions to results for June and July. It was the biggest trend monthly decline for the BSI since June 2011.
  • 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. The seasonally adjusted and trend BSI results are derived from the same SEASABS statistical software. This allows analysis of the broader underlying trends that may be hidden in the raw data.
  • Across sectors, 10 of the industry sectors fell in August, up from seven sectors in July. The strongest monthly trend increase in sales occurred in Mail Order & Telephone Order Providers (up 1.3 per cent), Wholesale Distributors and Manufacturers (up by 1.1 per cent) and Clothing Stores (up 0.8 per cent).
  • Amongst the weakest sectors in August were Government Services (down 1.7 per cent), Transportation and Automobile & Vehicles (both down 1.4 per cent), and Airlines (nfp).
  • In annual terms, four of the 20 industry sectors contracted in August, up from three sectors in July. Amongst the sectors recording declines were Airlines and Hotels & Motels.
  • At the other end of the scale, spending was strongest at Wholesale Distributors and Manufacturers (up by 26.1 per cent), Mail Order & Telephone Order Providers (up 21.8 per cent), Service Providers (up by 17.5 per cent).
    Three of the states and territories recorded weaker sales in trend terms in August. Sales in NSW fell by 1.0 per cent while sales fell 0.4 per cent in Victoria and fell by 0.1 per cent in Western Australia. The strongest results were in Northern Territory (up 0.9 per cent), South Australia and Tasmania (both up 0.7 per cent) followed by Queensland and the ACT (both up 0.1 per cent).
  • The trend BSI has now risen for 15 straight months in Northern Territory, for 14 straight months in Queensland, for 13 straight months in South Australia and 11 straight months in the ACT.
  • In annual terms, no state or territory had sales below a year ago. Strongest growth was posted in South Australia (up 16.0 per cent), followed by ACT (up 11.3 per cent), Queensland (up 10.1 per cent), Northern Territory (up 8.4 per cent) and Western Australia (up 7.8 per cent).

What is the importance of the economic data?

  • 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 broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines. The BSI is a gauge of economy-wide spending.

What are the implications for interest rates and investors?

  • The Reserve Bank certainly has the firepower to cut rates again. No doubt it will weigh its options carefully in coming months, assessing elements like the Aussie dollar, the European debt crisis, an economic recovery in China as well as home prices and consumer and business borrowing.
  • The Reserve Bank watches all indicators very closely, and as demonstrated by the recent article in its quarterly Bulletin, takes a keen interest in the CBA Business Sales index. The drop in spending in August keeps a rate cut on the table.
  • The September quarter inflation data due out in late October is likely to be the next catalyst for interest rates. Confirmation that inflation remains contained could open the door to for a further rate cut in November.

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