- Spending across the Australian economy grew by 0.7% in trend terms last month, according to the Commonwealth Bank’s Business Sales Indicator (BSI).
- Electronic spending in the amusement/entertainment and retail categories were particularly strong, boding well for upcoming official readings on retail sale and household consumption expenditure.
- Motor vehicles sales fell by 0.5%, the largest drop in 17 months, suggesting the downturn in the housing market may be affecting spending on big-ticket items.
Spending across the Australian economy continues to grow at a decent clip, hinting that stronger labour market conditions are continuing to offset the effects of weakness in the housing market.
According to the Commonwealth Bank’s Business Sales Indicator (BSI), spending grew by 0.7% in October, leaving the increase on a year earlier at 10.4%.
“Monthly growth in sales have held between 0.6% and 0.7% for the past three months, above the long-term average pace of 0.4%,” said Craig James, Chief Economist at Commsec, the Commonwealth Bank’s stockbroking division.
“With unemployment at six year lows, the strong jobs market appears to be providing a level of support for consumer spending, despite the angst about falling house prices.”
Spending has now increased in trend terms in each of the past 20 months.
James said it was those businesses that predominantly cater for households, rather than other businesses, that have seen solid growth in spending in recent months.
“Consumers are still happy focusing their discretionary spending on things they enjoy, like eating out at cafes and restaurants. They are also going into stores to buy things, taking advantage of the continued discounting and falling prices of everyday goods that we’re seeing,” he said.
“The fact that jobs are growing and wage growth is lifting, with people more secure in their roles, is clearly great news for consumer-focused businesses. Consumer confidence is above longer-term averages with household spending growing at the fastest pace in six years.”
The bank said the largest increase in sales last month was in the amusement and entertainment category, up 1.7%, followed by spending at retail stores which grew by an impressive 1.5%, a good sign before the release of Australia’s official retail sales report in early December.
However, hinting that a declining wealth effect from Australia’s housing market downturn is now affecting spending on big-ticket items, motor vehicles sales fell by 0.5% last month, the largest drop in 17 months.
“It appears that falling home prices in Sydney and Melbourne are crimping spending on [more expensive] items,” James said.
Similar to the monthly trends, sales surged by 18.2%, 13% and 12.6% respectively over the past year in the retail, amusement and entertainment and airline categories.
By location, sales grew in all Australian states and territories except the Northern Territory over the past year, ranging from 14.3% in Queensland to 6.8% in Tasmania. In New South Wales and Victoria, Australia’s most populous states, annual growth in sales stood at 7.8% and 12.2% respectively.
The BSI uses the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities to track economy-wide spending.
While it only uses transactions processed through CBA terminals, as Australia’s largest retail bank, the trends reflected in the data likely match those in the broader Australian economy.
The BSI tracks spending on both retail sales and services, meaning it’s similar to nominal consumption expenditure in Australian GDP reports.
While factors such as population growth, inflation, wage increases and the continued switch away from cash to electronic payments undoubtedly helps to boost the BSI, the resilience in the latest report should not be dismissed given it reflects recent strength in consumer confidence and employment growth.
It’s only early days, but households appear to be coping well with the downturn in the housing market.
Whether that remains the case is the great unknown, with labour market conditions likely to be key.