Economy-wide spending grew for the 43 consecutive month in February, but the pace of growth slowed to a crawl in the month. The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by just 0.1 per cent in trend terms in February after similar growth in January. And annual growth slowed to 5.8 per cent – the slowest growth in two years.
The more volatile seasonally adjusted estimate of spending fell by 0.3 per cent in February after lifting by 0.8 per cent in January. Annual growth eased from 6.0 per cent to 5.7 per cent.
At a sectoral level, just six of the 19 industry sectors contracted in trend terms in February, down from seven sectors in January. But sales fell in six of the states and territories in February.
The seasonally adjusted and trend estimates of the BSI results are derived via the SEASABS statistical program from the Australian Bureau of Statistics.
The Commonwealth Bank 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?
Retail spending had been growing above longer-term averages for the past year, so it was to be expected that sales would start to under-perform the “normal” growth rates. But the outlook is still positive. Lower petrol prices and lower interest rates boost spending power. But it is important to note that wage growth is only marginally ahead of the inflation rate.
Sales at retailers that are dependent on home building and purchases should remain well supported. Domestic travel has lifted with the lower Aussie dollar and that is helping hotels and motels and other tourism operators.
What does the data show?
The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, slowed to a crawl over January and February, growing in both months by just 0.1 per cent in trend terms. Current trend growth is well below the long-term average sales growth of 0.4 per cent per month.
Still, economy-wide sales have consistently grown now for the past 3½ years.
In annual terms, the BSI grew by 5.8 per cent in February, the slowest growth in 24 months, and down from the recent high of 9.4 per cent in September 2014.
The seasonally-adjusted measure of sales fell by just 0.3 per cent in February after growing by 0.8 per cent in January. Annual growth slowed for the fourth straight month to 5.7 per cent.
The Commonwealth Bank 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 six of the 19 industry sectors in trend terms in February. Amongst the weakest sectors were Business Services (down by 4.1 per cent); Automobile & Vehicle Sales (down by 2.5 per cent); and Professional Services & Membership Organisations (down 0.6 per cent).
Among the strongest sectors in February were, Mail Order/Telephone Order Providers (up by 1.8 per cent), Hotels & Motels (up 1.3 per cent); and Miscellaneous Stores (up 1.0 per cent). The large Retail Stores sector grew by 0.4 per cent for the third straight month
In annual terms in February, seven of the 19 industry sectors contracted including: Utilities, Automobile and Vehicle Sales, Business Services, Automobile/Vehicle Rentals and Clothing Stores.
At the other end of the scale, sectors with strongest annual growth in February included Amusement & Entertainment; Hotels & Motels; Miscellaneous Stores; Service Providers; Transportation; and Wholesale Distributors & Manufacturers.
Across the states and territories, sales rose in just two of the economies in trend terms in February. Sales rose most in Tasmania (up 0.2 per cent) and South Australia (up 0.1 per cent). Spending fell most in NSW (down 1.7 per cent) followed by Northern Territory (down 1.6 per cent), Victoria (down 1.2 per cent), Queensland (down by 0.2 per cent) and Western Australia and ACT (both down by 0.1 per cent).
The trend BSI has risen for 36 straight months in Tasmania. Sales in South Australia were higher in February for the first time in five months.
In annual terms, only the NSW, Northern Territory and Victoria had sales below a year ago in February. At the other end of the scale, growth was strongest in Tasmania (up 7.9 per cent), South Australia (up 5.5 per cent), Queensland (up 5.1 per cent) and Western Australia (up 3.4 per cent).
What is the importance of the report?
The Commonwealth Bank releases its Business Sales Index around the 20th 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 Reserve Bank will consider cutting rates at the next few Board meetings and there remains a high chance that it will cut rates again at the April Board meeting. However CommSec expects the Reserve Bank to keep rates on hold until the May meeting (after the next round of inflation data).
The outlook for retailers is positive. Job advertisements have risen for nine straight months; the Aussie dollar is holding near US76-78 cents; petrol prices remain relatively low; and interest rates are at generational lows. In addition domestic retailers remain under pressure to match prices provided by overseas retailers, but that is good news for consumers.
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