Spending still expanding at a firm pace

Commonwealth Bank Business Sales Index

• Economy-wide spending consolidated in July after powering at an “above-normal” pace just after the Federal Budget. According to the Commonwealth Bank Business Sales Indicator (BSI), spending expanded by 0.6 per cent in July after posting growth rates of between 0.7-0.9 per cent per month from March to June.
• But while monthly spending growth eased, annual growth remained firm, with sales up 7.7 per cent in July on a year earlier – well above the decade-average trend pace of 5.3 per cent.
• 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?

• The latest data on the economy continues to encourage. Businesses have joined consumers in lifting spending, and economy-wide spending is now growing at an “above-normal” pace. The Commonwealth Bank’s “big data”, drawn from credit and debit card transactions across the group, support Bureau of Statistics data on retail trade and the observations of private sector surveys.
• Most encouragement comes from the continued lift in spending across the “business services” category. The Business Services industry group includes a broad array of businesses, and according to the sectoral definitions provided by credit card providers, includes office furniture, computers, commercial equipment and industrial supplies. For most of 2014, spending at business services was going backwards. But for the past five month solid gains in business spending has been recorded.
• If businesses and consumers continue to spend, then the Reserve Bank can safely stay on the interest rate sidelines.

What does the data show?

• The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, continued to grow at a firm pace in July. The BSI lifted by 0.6 per cent in July, the slowest growth in five months but still above “normal”. Spending was up by 7.7 per cent over the year.
• The seasonally-adjusted measure of sales rose by 1.2 per cent in July, the fastest rate in four months. Sales were up by 7.4 per cent on a year ago, well above the decade average pace of 5.3 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.
• It is still clear that small businesses are embracing Government stimulus measures. Spending at Business Services (includes spending on industrial equipment, office furniture and computers) grew by 0.8 per cent in July after solid growth of 1.4 per cent in both April and May and 1.1 per cent growth in June.
• Only three sectors recorded weaker sales in July: Airlines, Mail Order/Telephone Order Providers and Professional Services & Membership Organisations. Strongest growth was recorded by Clothing Stores (up 1.8 per cent) and Automobiles & Vehicles (up 1.5 per cent).
• Over the past four months, spending growth at Clothing Stores was the fastest in over six years. And growth of spending at both Business Services and Automobiles & Vehicles outlets in recent months has been the best in around 18 months. Sales at the large Retail Stores sector grew by 0.5 per cent in July after rising 0.6-0.7 per cent per month in the previous ten months.
• In annual terms in July, seven of the 19 industry sectors contracted including: Utilities, Mail Order/Telephone Order Providers, Automobile and Vehicle Sales, Business Services and Airlines.
• At the other end of the scale, sectors with strongest annual growth in July included: Hotels & Motels; Miscellaneous Stores; Personal Service Providers; Amusement & Entertainment; and Wholesale Distributors & Manufacturers.
• Sales rose in all states and territories in July except Northern Territory, down by just under 0.1 per cent. Sales rose most in ACT (up 1.0 per cent) from Queensland, South Australia and Tasmania (all up 0.7 per cent), Western Australia (up 0.6 per cent), NSW (up 0.4 per cent) and Victoria (up 0.3 per cent).
• In annual terms, only the NSW and Northern Territory had sales below a year ago in July (down 5.5 per cent and 6.4 per cent respectively) At the other end of the scale, growth was strongest in the ACT (up 16.0 per cent) from South Australia and Western Australia (both up 8.1 per cent), Queensland (up 7.7 per cent), Tasmania (up 7.4 per cent) and Victoria (up 1.5 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 latest data adds to our view that the Reserve Bank will leave official rates unchanged in coming months.