Consumers put their wallets away after Australia's close federal election

Darrian Traynor/Getty Images

Economy-wide spending in Australia flatlined in July, continuing the pattern seen since the beginning of the year.

That’s the latest underwhelming economic signal provided by the Commonwealth Bank’s Business Sales Indicator (BSI) with the annual pace of growth slowing to 3.5% from 3.9% in June, the weakest level seen in four years.

The BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities over any given month. Distinguishing it from Australia’s official retail sales report released by the ABS, it measures changes in spending on both goods and services, not goods alone.

While it only covers sales transactions processed by the CBA, as Australia’s largest retail bank the figures can be used to extrapolate spending patterns across the broader Australian economy.

The CBA suggests that the BSI is more comparable to the household final consumption expenditure figure released in Australia’s quarterly GDP report. As the largest component of GDP, it paints a dreary picture of what may arrive on that front when the June quarter GDP report is released by the ABS early next month.

As the chart below from the CBA reveals, growth in spending has all but stalled since the beginning of the year. According to Commsec, the authors of the report, the BSI has averaged an increase of just 0.1% in the first seven months of the year, far below the 0.5% average recorded each month a year earlier.

Craig James, chief economist at Commsec, suggests the recent trend may have been caused by uncertainty generated by the federal election.

“The overall result was dragged down by weakness in business services and government spending and may have been influenced by election uncertainty,” says James. “Before the election period, consumers and businesses may have been reluctant to spend ahead of the UK vote on European Union membership.”

Compared to June, the value of sales rose in 10 of the 19 industry sectors tracked by the CBA in trend terms. Adding credence to James’ view that the weak result may have been caused by uncertainty generated by the election, he notes that spending on government and business services fell by 1.7% and 1.0% respectively, the latter the steepest amount seen in 17 months.

On an annualised basis, 15 of 19 sectors saw the value of sales increase.

By state and territory, New South Wales saw the value of sales slip 0.3% in July — the third contraction in a row — which offset modest increases in the Northern Territory (0.6%), South Australia (0.4%), the ACT (0.3%), Victoria (0.3%), Western Australia (0.2%) and Tasmania (0.2%). Sales were flat in Queensland.

Looking back a year, the value of sales in Victoria fell by 1.0%, dragging down the national average.

“(The) strongest growth was in ACT (8.7%), from Tasmania (up 7.5%), Northern Territory (6.9%), South Australia (5.8%), NSW (5.4%), Western Australia (5.3%) and Queensland (3.2%),” said James.

Despite the sharp slowdown in sales growth over the past year, James suggests that trend will likely reverse now that the election outcome in known.

“The economy may have lost some momentum through the election period. The question is what happens from here,” says James.

“With interest rates and petrol prices historically low and with the jobless rate at 3-year lows, a lift in spending is expected in the lead-up to Christmas.”

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