Commonwealth Bank of Australia : Caution affecting business sales

Economy-wide spending was flat for the fifth straight month in July, according to the Commonwealth Bank Business Sales Indicator (BSI), with spending dragged down by weakness in Business Services and Government sectors.

In the first seven months of 2016, economy-wide spending has lifted on average by just 0.1 per cent each month in trend terms, compared with an average 0.5 per cent per month over 2015.

Annual growth in spending slowed from 3.9 per cent to 3.5 per cent, the weakest annual growth recorded since March 2012. The annual growth rate had held at above-normal levels of between 7.0 and 7.6 per cent between April and November 2015, but has slowed over the course of this year.

The more volatile seasonally adjusted BSI has moved in a zig-zag fashion over the past eight months, falling by 0.9 per cent in July after rising by 1.7 per cent in June. Annual growth stands at 3 per cent.

Craig James, Chief Economist, CommSec said the fundamentals of the economy are still sound, with low unemployment and solid GDP growth, so it appears that global factors and election uncertainty have dampened spending intentions in recent months.

'The recent lift in consumer confidence, low petrol prices and low interest rates should support economy-wide spending over the remainder of 2016.

'The BSI does show that consumers are still confident to spend in the retail sector as highlighted by the increases in spending in Clothing Stores and Miscellaneous Stores. Most states and territories are still seeing some spending growth, so there are positive signs in these results,' Mr James said.

Industry analysis

A total of 10 of the 19 industry sectors rose in trend terms in July. In five of the 19 sectors spending rose or fell by 0.1 per cent or less. Spending by Government Services fell by 1.7 per cent and spending by Business Services fell by 1.0 per cent, the biggest fall in 17 months.

One of the strongest gains occurred in Clothing Stores with spending up 1.1 per cent in trend terms in July after gains of 1.5 per cent in June and 1.6 per cent in May. Spending at Mail Order/Telephone Order Providers rose by 1.1 per cent with Miscellaneous Stores went up 1.0 per cent.

State-by-state analysis

Across states and territories in July, sales fell only in NSW (down 0.3 per cent) - the third straight monthly decline in the state.

Of the other states and territories, spending growth was strongest in the Northern Territory (up 0.6 per cent), followed by South Australia (up 0.4 per cent), ACT and Victoria (both up 0.3 per cent), Western Australia and Tasmania (both up 0.2 per cent) with sales broadly flat in Queensland in July.

In annual terms only Victoria had sales below a year ago (down 1.0 per cent). The strongest annual growth was in the ACT (up 8.7 per cent), followed by Tasmania (up 7.5 per cent), the Northern Territory (up 6.9 per cent), South Australia (up 5.8 per cent), NSW (up 5.4 per cent), Western Australia (up 5.3 per cent) and Queensland (up 3.2 per cent).

Find out more about the latest Commonwealth Bank Business Sales Indicator

About the Commonwealth Bank Business Sales Indicator

The Commonwealth Bank Business Sales Indicator (BSI) is calculated by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities throughout Australia.

The BSI has been devised to provide a monthly assessment of spending trends in the Australian economy (covering 19 industry sectors and all Australian states and territories) and is available to the public on the Bank's website and to the media on or around the 20th day of each month.

Credit and debit card transactions can be volatile on a month-to-month basis, affected by seasonal and irregular factors. The BSI is tracked in seasonally adjusted and trend terms. The overall BSI is measured in both seasonally adjusted and trend terms while state/territory and industry data are measured using the less volatile 'trend' approach. The seasonally adjusted and trend estimates of the BSI results are derived via the SEASABS statistical program from the Australian Bureau of Statistics.

The monthly BSI has been devised to provide a more timely assessment of spending trends in the economy. The main monthly indicator of spending in the economy is the Australian Bureau of Statistics' (ABS) Retail Trade release. However these statistics only cover spending at retail establishments, and exclude spending at a raft of other businesses.

The BSI includes transactions made at traditional retail establishments such as supermarkets, clothing stores, cafes and restaurants and as such is more comparable to the ABS Household Final Consumption Expenditure, which is released on a quarterly basis. The BSI 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 BSI includes industry sectors based on the International Merchant Category Code (IMCC) categories. MCC is a four-digit number assigned to a business when the business first starts accepting cards as a form of payment.