- Household spending in Australia was weak in the second half of last year, contributing the slowdown in the broader economy.
- A measure of economy-wide spending from the Commonwealth Bank suggests consumption levels are improving. It picked up the deceleration in spending levels seen late last year.
- The RBA says there is “considerable uncertainty around the outlook for consumption”.
- Household spending accounts for over half of the Australian economy.
Growth in Australian household spending slowed sharply in the second half of last year, contributing to the broader deceleration in the economy given it accounts for over 50% of GDP.
With household incomes growth still soft and property price weakness spreading across the country, many suspect those trends will continue in 2019, creating a scenario that could see economic growth remain sluggish, leading to a possible increase in unemployment and weaker inflationary pressures.
It’s little wonder why so many now expect the Reserve Bank of Australia (RBA) will be forced to cut Australia’s cash rate this year.
However, perhaps all the chatter about rate cuts may be overdone, at least if new data from the Commonwealth Bank is anything to go by.
According to its Business Sales Indicator (BSI), a measure that tracks the value of credit and debit card transactions processed through its merchant facilities, economy-wide spending rose by 0.5% in trend terms during February, the fastest pace in nine months.
As seen in the chart below, electronic spending through the Commonwealth Bank’s terminals is now showing signs of picking up following a weak patch in the second half of last year.
Given the deceleration in the BSI last year coincided with the slowdown in household spending in Australia’s national accounts, the subsequent acceleration this year hints that official data may follow suit when released in the months ahead.
Rather than just tracking spending at retail stores like Australia’s retail sales report, the BSI also includes transactions at airlines, car dealers and utilities such as water and electricity companies, as well as motels, business, professional and government services and wholesalers.
As such, the Commonwealth Bank says that means the BSI is more comparable to Household Final Consumption Expenditure (household spending) released in Australia’s GDP reports.
The elevated level of the BSI in comparison to household consumption in the national accounts reflects that it only measures electronic spending, rather than both electronic and cash spending in the economy.
In the minutes of the RBA’s March monetary policy meeting, the bank said there was “considerable uncertainty around the outlook for consumption given the environment of declining housing prices in some cities, low growth in household income and high debt levels”.
It added that “growth in consumption was expected to be supported by an increase in growth in household disposable income”.
If the trends in the BSI are reflected in upcoming retail sales and household consumption data, it may help to resole that uncertainty. It may also see expectations for multiple rate cuts from the RBA scaled back significantly.
Time will tell.
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