What does it all mean?

• Aussie consumers and businesses are spending a little bit more freely. According to the latest Commonwealth Bank Business Sales Indicator (BSI), economy-wide spending grew by 1 per cent in trend terms in May, after a 1.2 per cent lift in April and a 1.1 per cent gain in March.
• Retailers have reason to be more confident, and despite the recent fall in the Aussie dollar it is still a case of keeping prices lower to attract customers and prevent them flocking to overseas web sites.
• The Reserve Bank is unlikely to shift its rhetoric in the near future. The economy is improving of a low base, however the recovery is still fragile. An ongoing improvement in confidence is necessary to support activity levels, and the perception of lower interest rates will certainly support sentiment.

What do the figures show?

• The recovery in economy-wide spending is consolidating. According to the latest Commonwealth Bank Business Economy-wide spending is now recording firm growth, in marked contrast to the weakness exhibited from May to September last year. According to the latest Commonwealth Bank Business Sales Indicator (BSI), economy-wide spending grew by 1.0 per cent in trend terms in May, the ninth constructive monthly increase in spending. Over that past three months sales have lifted on average by 1.1 per cent a month – the strongest growth in six years.
• The seasonally-adjusted measure of sales leapt by 5.2 per cent in May – the strongest increase in five years. The BSI had previously eased by 0.1 per cent in April after lifting by 1.3 per cent in March. Annual growth in spending now stands at 10.3 per cent in seasonally adjusted terms, up from 5.9 per cent in April.
• 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, seven of the industry sectors fell in trend terms in May but declines were fairly modest. Amongst the weakest sectors in May were Mail Orders & Telephone Order Providers (down 1.6 per cent) with Automobiles & Vehicles, Business Services and Hotels & Motels all losing 0.6-0.7 per cent.
• In contrast the large Retail Stores sector (31.5 per cent of the BSI) rose by 2.3 per cent in May with both Utilities and Wholesale Distributors & Manufactures up 1.4 per cent.
• In annual terms in May, the BSI was up 7.4 per cent on a year ago – the best growth since December 2007. Six of the 20 industry sectors contracted in May, up from five sectors in April and four sectors in March. Spending in Business Services fell for the third straight month, down 6.2 per cent and the biggest fall in around 5½ years. And sales at Mail Orders & Telephone Order Providers fell at a 28.1 per cent annual pace in May after rising at an annual rate of around 20 per cent between March-June 2012.
• Strongest growth was recorded by the large Retail Stores sector, up 12.9 per cent on a year ago, while the Wholesale Distributors & Manufactures sector was up 11.0 per cent, followed by Utilities, up 9.2 per cent, Government services, up 8.6 per cent.
• None of the states and territories recorded weaker sales in trend terms in May. Sales rose most in NSW (up 1.9 per cent), followed by the ACT (up 1.5 per cent), South Australia (up 1.0 per cent), Queensland (up 0.6 per cent), Western Australia (up 0.3 per cent), Northern Territory and Victoria (up 0.2 per cent) and Tasmania (flat).
• The trend BSI has now risen for two years in the Northern Territory, for 23 straight months in both Queensland and South Australia, for 20 straight months in ACT and for 14 straight months in Tasmania.
• In annual terms, no state or territory had sales below a year ago. Strongest growth was posted in ACT (up 13.3 per cent), followed by South Australia (up 12.2 per cent), NSW (up 8.8 per cent), and Queensland (up 7.5 per cent).

What are the implications for interest rates and investors?

• Consumer spending is expanding at a reasonably constant rate across the country. Overall the economy remains patchy at present and policymakers will want more consistent readings on the economy before deciding on any shifts in monetary policy. CommSec expects the next rate cut to take place in August.

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This information supports the release of ASIC’s new suite of tools to help Australians track where their money goes.

ASIC’s Senior Executive Leader, Financial Literacy Robert Drake says, ‘We suspect many households end up misdirecting thousands of dollars each year because they are not keeping track of where their money goes. As the spending clock  shows, expenses add up quickly.’

‘Our research shows many people fall into the habit of living pay to pay. That’s why we have developed a new suite of tools to help Australians take control of where their money goes week to week, so they can direct it to where it matters most.’

The tools are:

• a free smartphone app called ‘TrackMySpend’  available on iTunes
• a Managing Your Money booklet
• an online Budget Planner on ASIC’s MoneySmart website .

The TrackMySpend app can be used to record expenses on the go. The app helps the user set a realistic spending limit and stick to it. Expenses are entered by category to ensure the user’s money goes towards the things that are important.

One user said, ‘I like the ability to view my expenses as needs or wants. I could see straight away where to look for opportunities to save’ [3].

According to The Telstra Smartphone Index [4] ‘People aged between18-44 are the highest proportion of smartphone users in Australia. More than 70% of 25-29 year olds own a smartphone, followed by 69% of 21-24 year olds and 66% of 30-40 year olds.

Mr Drake says, ‘If 85% of people with smartphones use their phone on the go,[5] then we have a chance to reach these young people while they are on the move, so no expenses can slip through the cracks. The app can also help these younger demographics stick within the budget they have set for themselves, so they can save for a holiday or get rid of debt.’

ASIC’s top tips on how to take control of your money include:

• TRACK your day-to-day spending by recording what you spend over a week or a fortnight using the TrackMySpend app.
• COMPARE money in and money out over the period of a month. Put your income and expenses into MoneySmart’s budget planner and let it do the calculations for you.
• PRIORITISE where you want your money to go. Identify your needs versus wants, make savings (switch bills) and cuts (reduce the things you can live without), set savings goals and refine your budget.
• ACT to make your money work for you. Mark upcoming big bills in your calendar. Put your savings into an account that is not accessible by ATM. Stay on track by checking your budget once a year and adjusting it if your finances change. Reward yourself with occasional treats so living on a budget doesn’t feel like a chore.

The Managing Your Money booklet is a step-by-step guide to budgeting, with a lift out budget template for those who prefer pen and paper. The booklet and other publications can be ordered for free on the MoneySmart website.

The Budget Planner on MoneySmart’s website  is the most popular tool used by 28,000 people each month.

[1] The spending clock is based on ABS Household Expenditure data
[2] Based on data from 1,400 anonymous participants who used the Money Health Check tool. Participants responded to the question, ‘Do you know what your money is spent on?’
[3] Based on ASIC user research 2012
[4] The Telstra Smartphone Index, 2011 by The Nielsen Company
[5] Research by Google and Ipsos MediaCT 2012

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• Chinese consumer prices rose at a 5.1 per cent annual pace in November – the fastest pace in over two years but driven by higher food prices. Non-food inflation was just 1.9 per cent in November. China is using sales of state food reserves in an effort to cap food prices.
• Annual growth rates for industrial production and investment were slightly above market expectations but the latest data on retail sales was broadly in line with the consensus view. Chinese authorities are continuing to achieve success in controlling property prices.
• Ahead of the release of the data, the Peoples Bank of China increased bank reserve requirements for the third time in a month, with ratios lifted by 50 basis points, effective December 20.

What does it all mean?

• In Australia the Government and Reserve Bank would largely be powerless to address a sharp lift in food prices. They would conclude that the vagaries of weather are outside their control and lifting interest rates would be largely pointless given that inflation wasn’t generated by the strength of the economy. But in China, authorities take a different view. Food represents a bigger share of the household budget and authorities are also keen to prevent consumers becoming disaffected by higher living costs.
• So Chinese authorities are releasing state food reserves to keep a cap on food prices. And it is reported that the State Council is boosting efforts to increase the production of vegetables and other basic goods. The central bank is also determined to keep the broader economy in check, increasing bank reserve requirements for the third time in a space of a month. A lift in interest rates over the next few weeks also can’t be ruled out, but arguably production and retail sales are growing at sustainable rates and property inflation continues to moderate.
• Contrary to the belief of many investors, the fact that Chinese authorities are determined to restrain inflationary pressures is a positive, not a negative development. A much more negative development would be if inflation was allowed to grow unchecked. The main concern is if the authorities overdo the efforts to tighten the economy.
• Chinese authorities are continuing to achieve success in controlling property prices. Prices lifted just 0.3 per cent in November and the annual rate slowed to 7.7 per cent in November.
• China is Australia’s major trading partner. And we have reached the point where if China sneezes then Australia would be at the risk of developing a cold. Clearly the Chinese economy remains in strong shape but the battle over inflation is the main issue to watch.

What do the figures show?

• The annual rate of consumer price Inflation lifted from 4.4 per cent in October to a 28-month high of 5.1 per cent in November due to higher food costs (consensus 4.7 per cent). Food prices rose by 11.7 per cent over the year while non-food prices rose by just 1.9 per cent.
• The annual rate of producer price inflation rose from 5.0 per cent to 6.1 per cent in November (consensus 5.1 per cent) in response to higher costs for raw materials like cotton, fuel and cement.
• Industrial output expanded at a 13.3 per cent annual pace in November, up from the 13-month low of 13.1 per cent in October (consensus 13.0 per cent). Production is still well off the highs of 20.7 per cent annual growth in January/February.
• China’s urban fixed asset investment, such as spending on roads and power plants, grew at a 24.9 per cent annual pace in the 11 months to November (consensus 24.3 per cent), and up from 24.4 per cent over the 10 months to October.
• Retail sales grew at an 18.7 per cent annual rate in November (consensus 18.8 per cent), up from the 18.7 per cent annual pace in the year to October.
• Broad money supply (M2) rose at a 19.5 per cent annual rate in November, the fastest pace in six months.
• Chinese property prices slowed again in November. Urban property prices rose by 7.7 per cent in the year to November, down from 8.6 per cent in the year to October, and the 12.8 per cent peak in April.
• In November alone, property prices rose by 0.3 per cent after a 0.2 per cent lift in October.
• In the first 11 months of 2010, new property sales were up 9.8 per cent, up from 9.1 per cent in the first 10 months of the year.

What is the importance of the economic data?

• China’s National Bureau of Statistics releases its monthly economic statistics around the middle of each month. Quarterly GDP data is released around the 16th of January, April, July and October. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.

What are the implications for interest rates and investors?

• Investors are worried about rising inflation in China. While the main issue is higher food prices – a temporary situation and outside central bank control – investors are worried that higher inflation may become entrenched. There also is the concern that authorities may make policy mistakes – either tightening policy too much or not enough.
• The Chinese economy continues to expand at a firm clip but growth rates of investment, retail sales and production are well off highs earlier in the year. Australia’s Reserve Bank will certainly keep a close eye on developments in China but there are no major concerns at present. The main focus is the efforts to keep inflation in check.

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