Solid economy-wide spending in February

Commonwealth Bank Business Sales Index

• Economy-wide spending remained solid in February. The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending, rose by 1.0 per cent in trend terms in February, matching the January outcome and the strongest pace of growth in four years.
• The annual trend growth in sales lifted from 6.0 per cent to 7.0 per cent – the fastest growth in over two years and above the decade-average pace of 3.2 per cent.
• The more volatile seasonally adjusted measure of the BSI rose by 1.7 per cent in February – the sixth gain in seven months.
• At a sectoral level, 16 of the 19 industry sectors rose in trend terms in February, up from 15 sectors in January but equal to the December result. And sales rose in all of the states but the two territories recorded lower trend sales in the month.
• 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?

• Some may have questioned the strength of economy-wide spending in January. But a similarly firm result has now been notched up in February. And it should be noted that the earlier Bureau of Statistics data on economy-wide sales for the December quarter, also indicated broad-based strength in spending.
• The solid string of employment gains has supported spending. In addition the strength of the job market is positive for job security and, in turn, consumer spending. Business and government spending are being supported by robust infrastructure activity.

What does the data show?

• The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – lifted by 1.0 per cent in trend terms in February. After recording broadly flat monthly trend growth in sales a year ago from December 2016 to February 2017, the pace of sales has consistently lifted. Now monthly trend growth is maintaining the strongest pace in four years.
• Encouragingly, sales at combined retail and clothing stores continued to lift, growing by 0.9 per cent in February. A year ago sales were falling at a 0.3 per cent monthly pace in the combined retail and clothing sectors.
• Annual trend growth of the BSI rose from 6.0 per cent to 7.0 per cent in February.
• The more volatile seasonally-adjusted measure of the BSI rose by 1.7 per cent in February after rising by 1.2 per cent in January. Spending has now grown in six of the past seven months.
• The Commonwealth Bank BSI is obtained by tracking the value of credit and debit card transactions processed through the Commonwealth Bank merchant facilities. And in line with the practice of the Bureau of Statistics with retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. The seasonally adjusted and trend BSI results permit analysis of the broader underlying trends that may be hidden in the raw data.
• Across sectors, 16 of the 19 industry sectors rose in trend terms in February. Sales were down at Mail Order/Telephone Order Providers (down by 1.1 per cent) followed by Business Services (down 0.4 per cent) and Utilities (down 0.2 per cent). The biggest lift in sales occurred at Retail Stores (up 1.9 per cent) from Government Services (up 1.5 per cent) and Airlines (up 1.1 per cent).
• The lift in spending by Retail Stores matched the January outcome and was the strongest growth in around 8½ years (July 2009), supported by firm job growth, low interest rates and modest retail inflation.
• In annual terms in February all but one of the 19 industry sectors recorded gains. Spending fell 4.9 per cent over the past year in the Mail Order/Telephone Order Providers sector.
• At the other end of the scale, sectors with strongest annual growth in February included Airlines (up 17.3 per cent), Transportation (up 13.9 per cent), Utilities (up 12.0 per cent) and Government Services (up 11.8 per cent).
• Across all states in February, sales were stronger. But sales fell 0.4 per cent in the Northern Territory and fell by 0.3 per cent in the ACT. Strongest growth occurred in Victoria (up 1.4 per cent) from Queensland (up 1.1 per cent); NSW (up 1.0 per cent); Tasmania (up 0.7 per cent); and South Australia and Western Australia (both up 0.6 per cent).
• In annual terms all states and territories had sales above a year ago. Strongest growth was Queensland (up 11.4 per cent); from Western Australia (up 8.8 per cent); Victoria (up 8.5 per cent); Northern Territory (up 8.3 per cent), South Australia (up 8.2 per cent); Tasmania (up 7.5 per cent); NSW (up 5.9 per cent); and the ACT (up 3.3 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 year has certainly started positively. Business conditions are at record highs; the job market continues to strengthen; consumers are spending; and the housing market is rebalancing. But the Reserve Bank doesn’t need to either restrain or boost activity in the economy.
• CommSec expects stable interest rate settings over coming months.