Trying to get a read on the Australian economy – where it’s at, where it’s going – is difficult at the moment.
On the one hand the RBA says growth should remain fairly strong in the year ahead. Yet it still cut rates because inflation is low. Employment growth, which is a lagging indicator but a good read on where the economy is at because we get the data so quickly, was very strong in 2015. But it has clearly slowed in 2016.
Trying to get a read on where the economy will head is why economists and traders pay so much attention to business and consumer surveys. Where the rubber hits the road for those surveys is in business CapEx and retail sales data.
Private sector data is also important especially when it comes from the economy-encompassing data Australia’s major banks capture in their daily transactions. The NAB’s online retail sales release has become a good lead for overall retail sales. Likewise, the Commonwealth Bank’s Business Sales Indicator (BSI) released this morning.
The BSI – awfully named because it’s really a retail sales indicator given it is calculated by tracking the value of credit and debit card transactions processed through CBA merchant facilities throughout Australia – showed a 3.4% jump in April after rising by 6.2% in March, and falling by 9.0% in February.
So there is a little volatility but solid recovery in recent months. That’s something we’ve seen in official retail sales data as well.
But the fact that the CBA prefers to report the trend data first – in the manner the ABS does now with employment – suggests that perhaps it is the longer term trend which is most important.
On that basis the BSI “rose by 0.2% in April, after gains of 0.1 % in the three previous months”. Importantly in the context of the current debate about the outlook for the economy and for RBA interest rates the BSI also showed that in trend terms there was sales growth “of just 0.2% a month over the past five months. Previously growth had lifted on average by 0.5% a month over the previous five months”.
That is a material step lower and suggests that the RBA, and market economists, might be onto something and the Australian economy really is in need of further – perhaps significant – rate cuts.