Economy-wide spending softened in December, extending the zig-zag run witnessed over the past seven months.
- According to the Commonwealth Bank Business Sales Indicator (BSI), spending fell by 1.9 per cent in seasonally adjusted terms in December after rising by 2.4 per cent in November.
- But the less volatile trend estimate of spending shows that underlying spending is indeed lifting, rising by 0.3 per cent in December, the third straight gain of that magnitude and the fifth straight monthly increase in economy-wide spending.
- 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, 12 of the 20 industry sectors contracted in trend terms in December, down from 13 sectors in November. But only two of the eight states and territories recorded weaker sales in trend terms in December, a similar result to November.
- 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?
- It is clear that at present the economy is treading water. Following an outsized gain in business sales in November, consumers have once again returned to conservative habits, with economy-wide spending easing by 1.9 per cent in seasonally adjusted terms in December.
- Over the past six months, we have seen fluctuating peaks and troughs in consumer spending. The good news is that spending is higher than a year ago across all States and Territories, however it is improving from a low base. In addition the more smoothed trend measure of spending lift for the fifth consecutive month – highlighting the underlying modest improvement in activity.
- Overall it was disappointing to see that retail sales levels were weaker in the key Christmas spending period. And the data suggested that a significant proportion of retail activity was largely due to the significant discount that took place, particularly in the post-Christmas period. Importantly it is still early days and rate cuts do have a more protracted and prolonged impact on the economy. In fact the ongoing improvement in consumer confidence should lead to a pickup in spending momentum over the medium term.
- In addition the job market remains balanced, wage growth is exceeding growth of prices and both house prices and share prices have been moving higher. In addition the Reserve Bank will continue to consider the possibility of further interest rate cuts over the next few months. So the outlook for the economy remains positive.
What do the figures show?
- Economy-wide spending is trending higher although the result in being masked by volatility in the monthly data. The latest Commonwealth Bank Business Sales Indicator (BSI) shows that spending fell by 1.9 per cent in seasonally adjusted terms in December after lifting by 2.4 per cent in November. The seasonally-adjusted figures have tended to move in a zig-zag fashion over the past seven months.
- But the less volatile trend measure of economy-wide spending is useful in gauging the underlying direction of spending. And the trend BSI rose by 0.3 per cent in December, the third straight month that spending has lifted by that magnitude and the fifth straight monthly increase in spending. In trend terms spending has only eased in two of the past 17 months.
- 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, 12 of the industry sectors fell in December, down from 13 sectors in November. The strongest monthly trend increase in sales occurred in Transportation (up 1.8 per cent), followed by Government services (up 1.4 per cent) and Automobiles & Vehicles (up 1.1 per cent).
- Amongst the weakest sectors in December were Service Providers (down 3.6 per cent), Hotels & Motels (down 1.0 per cent) and Automobile/vehicle rentals (down 0.9 per cent).
- In annual terms, just four of the 20 industry sectors contracted in December, a similar result to November. Spending fell in Airlines (nfp), Service Providers (down 5.6 per cent), Hotels & Motels (down 4.3 per cent) and Automobile/Vehicle Rentals (down 1.5 per cent).
- At the other end of the scale, spending was notably higher at Amusement & Entertainment (nfp) together with Wholesale Distributors and Manufacturers (up by 18.2 per cent), Retail Stores (up 7.4 per cent), Contracted Services (up by 4.9 per cent) and Automobiles & Vehicles (up 6.2 per cent).
- Only two of the states and territories recorded weaker sales in trend terms in December: Northern Territory & South Australia (both down 0.3 per cent). Sales were flat in Western Australia. And sales rose most in Victoria and ACT (both up 0.5 per cent) followed by NSW (up 0.4 per cent), Queensland (up 0.3 per cent), and Tasmania (up 0.1 per cent).
- The trend BSI has now risen for 18 straight months in Queensland, for 14 straight months in ACT and for nine straight months in Tasmania.
- In annual terms, no state or territory had sales below a year ago. Strongest growth was posted in South Australia (up 10.6 per cent), followed by ACT (up 10.5 per cent), Queensland (up 8.1 per cent), Victoria (up 5.0 per cent) and Western Australia (up 4.1 per cent).
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, 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. And the fall in spending in December is likely to ensure that the Reserve Bank continues to maintain an easing bias.
