- Spending across the Australian economy rose by the most in over a year in March, according to the Commonwealth Bank’s BSI.
- Growth was recorded across most industries and in all states and territories except for the Northern Territory. Spending was particularly strong in Western Australia.
- The Australian economy slowed quite sharply in the second half last year, led by weakness in household spending.
- Along with firmer readings on retail sales and consumer confidence in recent months, the improvement in the BSI suggests the slowdown seen late last year may be starting to reverse.
Spending across the Australian economy grew a decent clip in March, raising further questions about the need for the Reserve Bank of Australia (RBA) to cut official interest rates in order to support the household sector.
The Commonwealth Bank’s Business Sales Indicator (BSI), a measure of spending that tracks the value of credit and debit card transactions processed through its merchant facilities, rose by 0.7% in trend terms during March, the fastest increase in over a year.
It was the ninth increase in the past 11 months, seeing annual growth accelerate to 5.6% from 5.4% in February.
After adjusting for seasonal patterns, spending also increased by 0.7% last month.
Rather than just tracking spending at retailers, 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.
As seen in the chart below, growth in the BSI slowed noticeably in the second half of last year, coinciding with a steep deceleration in household consumption over the same period.
Following a surprise rebound in retail sales in February, according to official ABS figures, along with a recent improvement in several consumer confidence surveys, the pickup in the BSI in recent months suggests household spending is starting to improve, likely helped by unemployment falling to a eight-year low in February and a modest lift in Australian wage growth over the past year.
“There has been a lot of discussion around the impact of declining home prices across the major cities, yet consumers continue to spend. While wage growth remains modest it continues to outstrip prices for a raft of goods and services,” said Craig James, Chief Economist at Commsec.
“Since December, it has been encouraging to see monthly growth rates continuing to lift, remaining above the long-term monthly average growth pace of 0.4%. Solid consumer spending remains a source of positive news for businesses and the broader economy.”
Over the course of March, 12 of 19 industry sectors saw sales increase in trend terms, led by 1.6% growth in spending on amusement/entertainment and transportation, along with a 1.2% increase at hotels and motels.
Similar to the trends across individual industries, sales grew in all states and territories except for the Northern Territory last month. The national acceleration was led by Western Australia where spending rose by 0.9%, just outpacing Victoria and Queensland where sales rose 0.8% apiece.
Should the recent improvement in the BSI be reflected in official data from the ABS, it will come as welcome news to the RBA given it believes household consumption remains a key area of uncertainty for the broader Australian economy.
“Growth in consumption had clearly slowed in the second half of 2018,” the RBA said in the minutes of its April monetary policy meeting.
“The weakness had been concentrated in discretionary items, especially those that have historically been most correlated with housing prices and housing turnover, such as motor vehicles and home furnishings.
“Retail sales data and contacts in the Bank’s liaison program suggested that growth in housing-related consumption had remained soft in recent months.”
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