Spending growth extends into the fourth year

Commonwealth Bank Business Sales Index

• 

  Consumer sentiment has lifted.

  Economy-wide spending grew at “normal” pace in August, moving the sales expansion into the fourth year. The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by 0.5 per cent in trend terms in August – in line with the long-term average growth pace. Sales have grown consistently over the past 37 months.

• The more volatile seasonally adjusted estimate of spending rose by 0.8 per cent in August, the fifth gain in six months and following on from a 1.6 per cent lift in July sales. Annual growth in sales eased from 11.9 per cent to 9.9 per cent – but above the 6.4 per cent long-term average.
• 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, only four of the 19 industry sectors contracted in trend terms in August, up from three sectors in both June and July. But sales only fell in one of the State & territories in August.
• 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?

• Aussie consumers are getting on with life. Consumer sentiment has lifted, wealth is near record highs, dividends are boosting family incomes and jobs are being created.
• Retailers still have some work to do to convert better consumer sentiment to increased sales. There is so much competition from businesses across Australia and across the world, so the offering needs to stand out in quality and price. But household disposable income lifted by 4.7 per cent in the year to June – the fastest growth in two years. Wage growth is more modest but wages only account for 55 per cent of household income.
• The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, grew for the 37th straight month in August. While trend growth of 0.5 per cent in the month was in line with the long-term average pace of growth, it was the weakest growth since July 2013.
• In annual terms, the BSI continued to grow above the long-term average or normal growth pace. In August the BSI was up by 9.8 per cent on a year earlier, up from 9.5 per cent in June and 9.7 per cent in July but above the 6.2 per cent long-term average growth pace.
• The seasonally-adjusted measure of sales rose by 0.8 per cent in August, down from a revised 1.6 per cent lift in July (originally reported as 1.7 per cent) and the seventh gain in nine months. Annual growth eased from a six-month high of 11.9 per cent to 9.9 per cent in August.
• 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, spending fell in just four of the 19 industry sectors in trend terms in August: Utilities (down 1.7 per cent); Clothing Stores (down 1.4 per cent); Amusement & Entertainment (down 0.2 per cent); and Automobile/Vehicle Rentals (down 0.1 per cent).
• Amongst the strongest sectors in August were, Service Providers (up 4.0 per cent); Mail Order/Telephone Order Providers (up 2.3 per cent); Airlines (up 1.9 per cent); and Miscellaneous Stores (up 1.4 per cent).
• In annual terms in August, only three of the 19 industry sectors contracted: Utilities, Automobile/Vehicle Rentals, and Clothing Stores.
• At the other end of the scale, sectors with strongest annual growth in August included Amusement & Entertainment; Hotels & Motels; Mail Order/Telephone Order Providers; and Transportation.
• Across the states and territories, sales rose in August in trend terms in all but the ACT (down 0.1 per cent).
• Of the other states & territories, leading the gains was South Australia (up 1.4 per cent), followed by Queensland (up 1.1 per cent) Tasmania (up 1.0 per cent); NSW (up 0.5 per cent), Victoria (up 0.4 per cent), Northern Territory (up by 0.2 per cent) and Western Australia (up by 0.1 per cent).
• The trend BSI has now risen for 38 straight months in Queensland, for 30 months in Tasmania, for 24 months in NSW and for 23 months in South Australia. Sales in Victoria have been either flat or higher for 38 consecutive months
• In annual terms, only the ACT had sales below a year ago. At the other end of the scale, growth was strongest in South Australia, Queensland, Tasmania and NSW.
• The Commonwealth Bank releases its Business Sales Index around the 20^th each month. The data provides a broader perspective of consumer spending. 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 economy is showing positive signs but the Reserve Bank will be in no rush to change interest rate settings.
• With wages growing at a slower rate than prices, retailers will continue to find the going tough.

What does the data show?

• The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, grew for the 37th straight month in August. While trend growth of 0.5 per cent in the month was in line with the long-term average pace of growth, it was the weakest growth since July 2013.
• In annual terms, the BSI continued to grow above the long-term average or normal growth pace. In August the BSI was up by 9.8 per cent on a year earlier, up from 9.5 per cent in June and 9.7 per cent in July but above the 6.2 per cent long-term average growth pace.
• The seasonally-adjusted measure of sales rose by 0.8 per cent in August, down from a revised 1.6 per cent lift in July (originally reported as 1.7 per cent) and the seventh gain in nine months. Annual growth eased from a six-month high of 11.9 per cent to 9.9 per cent in August.
• 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, spending fell in just four of the 19 industry sectors in trend terms in August: Utilities (down 1.7 per cent); Clothing Stores (down 1.4 per cent); Amusement & Entertainment (down 0.2 per cent); and Automobile/Vehicle Rentals (down 0.1 per cent).
• Amongst the strongest sectors in August were, Service Providers (up 4.0 per cent); Mail Order/Telephone Order Providers (up 2.3 per cent); Airlines (up 1.9 per cent); and Miscellaneous Stores (up 1.4 per cent).
• In annual terms in August, only three of the 19 industry sectors contracted: Utilities, Automobile/Vehicle Rentals, and Clothing Stores.
• At the other end of the scale, sectors with strongest annual growth in August included Amusement & Entertainment; Hotels & Motels; Mail Order/Telephone Order Providers; and Transportation.
• Across the states and territories, sales rose in August in trend terms in all but the ACT (down 0.1 per cent).
• Of the other states & territories, leading the gains was South Australia (up 1.4 per cent), followed by Queensland (up 1.1 per cent) Tasmania (up 1.0 per cent); NSW (up 0.5 per cent), Victoria (up 0.4 per cent), Northern Territory (up by 0.2 per cent) and Western Australia (up by 0.1 per cent).
• The trend BSI has now risen for 38 straight months in Queensland, for 30 months in Tasmania, for 24 months in NSW and for 23 months in South Australia. Sales in Victoria have been either flat or higher for 38 consecutive months
• In annual terms, only the ACT had sales below a year ago. At the other end of the scale, growth was strongest in South Australia, Queensland, Tasmania and NSW.

What is the importance of the report?

• The Commonwealth Bank releases its Business Sales Index around the 20^th each month. The data provides a broader perspective of consumer spending. 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

What are the implications for interest rates and investors?

• The economy is showing positive signs but the Reserve Bank will be in no rush to change interest rate settings.
• With wages growing at a slower rate than prices, retailers will continue to find the going tough.