Spending across Australia slows sharply as businesses turn cautious

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  • Spending levels across the Australian economy grew at the slowest pace in over a year in September, according to the Commonwealth Bank’s Business Sles Indicator (BSI).
  • The slowdown largely reflected a sharp decline in spending on business services.
  • It appears that stronger labour market conditions are helping to support spending in discretionary areas, including in those parts of the country where economic conditions were previously weak.

Spending levels across the Australian economy grew at the slowest pace in over a year in September, driven by a sharp reduction in expenditure among business.

The Commonwealth Bank’s Business Sales Indicator (BSI) — a measure that uses the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities to track economy-wide spending — grew by just 0.2% in trend terms last month, the weakest increase seen since May 2017.

Commonwealth Bank

While the BSI only uses transactions processed through CBA terminals, as Australia’s largest retail bank, the trends reflected in the data likely those in the broader Australian economy. The BSI tracks spending on both retail sales and services, meaning its similar to nominal consumption expenditure in Australia’s quarterly GDP reports.

Ryan Felsman, Senior Economist at the Commonwealth Bank, said there was a noticeable weakening in business services-related spending last month, an outcome potentially reflecting increased political uncertainty at home as well as the impact of continued trade tensions between the United States and China.

“Our data shows some weakness in the business services area, such as office furniture, falling to a 43-month low,” he said.

“As well as continued weakness in motor vehicle sales with the biggest drop in 31 months, moderated from the record highs we saw at the end of 2017 and beginning of 2018.”

Commonwealth Bank

Along with potentially reflecting renewed caution from businesses, Felsman said the decline in the latter was likely influenced by recent declines in Australian home prices, especially in Sydney and Melbourne.

“Reduced spending on new cars correlates with falling home prices, particularly in Sydney and Melbourne, resulting in an overall reduction in wealth,” he said.

However, while housing market weakness could be impacting spending levels on big-ticket items such as cars, Felsman said there was little evidence to suggest it was hindering demand on other discretionary items.

“Our data shows a positive theme around discretionary spending continuing, with consumers still willing to spend their money on experiences,” he said.

“Better Job security, and continued gains in the job market, has translated into people feeling more upbeat and therefore more comfortable to spend money at places like cafes and restaurants, and going on holidays.”

In trend terms, the BSI found retail stores increased by 1% in September, the largest increase in six months. Spending at hotels and motels also rose by 0.8%, continuing the solid trend in sales growth seen for over five years.

According to official data from the ABS, Australia’s unemployment rate tumbled to just 5% in September, the lowest level in over six years.

The ongoing improvement in the labour market also appears to be encouraging greater spending levels in those parts of the country that were previously weak, helping to partially offset a slowdown in New South Wales and Victoria that may due to the impact of falling home prices.

The BSI found that spending in the ACT rose by 0.7% in trend terms last month, the fastest of any state and territory. Solid growth in South Australia and Western Australia, at 0.5% and 0.4% respectively, was also reported.

In contrast, spending in Victoria (0.2%), New South Wales and Queensland (1%) was soft, while sales in the Northern Territory and Tasmania went backwards, falling 1.3% and 0.1% respectively.

Commonwealth Bank

From a year earlier, spending increased by over 11% in Western Australia, Victoria and Queensland, and by nearly 10% in South Australia. Slower sales growth of 8.5%, 7%, 6% and 0.8% was recorded in the ACT, New South Wales, Tasmania and the Northern Territory.

From a national perspective, the BSI said spending grew by 9.4% over the year, down from 9.9% in the 12 months to August.

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