COMMSEC: Spending in Australia has 'stagnated'

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Economy-wide spending in Australia is flat lining.

According to the latest Commonwealth Banks Business Sales Indicator (BSI) — a measure that tracks the value of credit and debit card transactions processed through the bank’s merchant facilities — spending rose by a benign 0.1% in June, seeing annual growth in sales slow to 4.3% from 4.6% in May in trend terms.

The more volatile seasonally adjusted figure showed spending at CBA terminals rose by 1.7% in the year to June, reversing a 1.3% decline reported previously.

According to Savanth Sebastian, an economist at Commsec, strength in clothing sales helped to offset continued weakness in business and government-related spending.

“The latest data shows that economy-wide spending has stagnated in the past few months, with weaker spending especially across business and government sectors,” says Sebastian. “Interestingly the cold weather over the last couple of months has supported clothing sales. In fact sales at clothing stores rose 2.5 per cent in the past two months – marking the best back to back growth in 4.5 years.

Although Sebastian notes that spending has “stagnated” of late, he believes there’s reason for optimism, noting that spending lifted in all but 5 of the 19 industry groups in June with spending up in most states and territories.

Indeed, over a longer period, sales increased at all bar four groups over the past year led by strong growth in hotels and motels (+14.6%), miscellaneous stores (+10.2%) and government services (+9%).

“It is probably a case of being alert but not alarmed about the latest spending figures,” he says. “The jobs data has highlighted similar caution with hiring in the past few months.

“With the election now out of the way it is likely that activity levels will lift in coming months,” he adds.

The weakness in the BSI mirrors that seen in retail sales data released by the Australian Bureau of Statistics over the first five months of the year. The difference between the two is that the BSI tracks spending across the economy rather than just retail sales, including spending on automobiles, personal services and airlines.

While the BSI tracks expenditure levels at CBA terminals, as Australia’s largest retail bank, it offers a useful guide to spending levels across the broader Australian economy.

Like the ABS’ retail sales report, weakness in the BSI is likely a combination of disinflationary forces, or in some instances outright deflation, along with tepid household income growth as a result of slower wage increases and still-elevated levels of labour market slack.

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