COMMSEC: Spending in the economy is strong but slowing

SYDNEY, AUSTRALIA – DECEMBER 23: Shoppers flock to stores as retailers experience boost in sales on December 23, 2013 in Sydney, Australia. Australian retailers experience some of their busiest trades in the days leading up to Christmas with atleast $20 billion spent already. (Photo by Brendon Thorne/Getty Images)

Spending across the Australian economy defied weak consumer sentiment in 2014, growing at more than 6% per annum.

That’s the good news in the Commonwealth Bank’s Business Sales Index (BSI) which tracks “the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. The BSI covers spending broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines.”

January’s data, however, showed that spending continued to decelerate with a rise of just 2%, which dropped the annual rate to 6.8%.

That’s still a solid rate of real growth (after inflation) and much stronger than the five-year average of 2.7%. But still not enough to keep the overall economy from posting below-trend growth.

CommSec chief economist Craig James says some slow down “was expected”. But, he added “the outlook is still positive. Lower petrol prices and lower interest rates boost spending power.”

James also highlighted that the economic transition the RBA is seeking is occurring and “sales at retailers that are dependent on home building and purchases should remain well supported. Domestic travel has lifted with the lower Aussie dollar and that is helping hotels and motels and other tourism operators.”

But consumer confidence remains fragile and James implies further slowing in the rate of spending in the economy highlighting that “wage growth is only marginally ahead of the inflation rate”.

The ABS releases the Australian Wage Price Index on Wednesday. It will be an important part in understanding the Australian retail spending and consumer confidence puzzle.

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