In what is a promising sign for the Australian economy after a less than stellar performance in the September quarter last year, economy-wide spending grew strongly in December, maintaining the positive momentum seen in recent months.
The Commonwealth Bank’s Business Sales Indicator (BSI) — a measure of spending on both goods and services that is obtained by tracking the value of credit and debit card transactions processed through its merchant facilities — increased by 0.7% in trend terms during December, leaving annual growth in sales at 5.4%, a nine-month high.
While the BSI only captures spending on cards processed through Commonwealth Bank terminals, as the largest retail bank in Australia, the results could be used to extrapolate broader spending patterns across the country.
Craig James, chief economist at Commsec, said that over the past four months, “monthly trend growth in spending has been between 0.7-0.8%, and above the 0.3% average monthly growth recorded for the first eight months of 2017”.
So momentum in spending is accelerating, and it’s also broad based in nature, says James.
“At a sectoral level, 17 of the 19 industry sectors expanded in trend terms in December, a similar outcome to October and November,” he said, noting that sales also increased in seven of Australia’s eight states and territories over the same period.
While indicative of a broad improvement in spending levels across the country, James’ notes that sales in retail stores fell by 0.2% last month, a slightly concerning outcome after an underwhelming retail sales result for November.
However, while spending on retail goods was weak, that was more than offset by spending on services.
“One of the strongest gains occurred in business services, up 1.9% in December after a 2.3% increase in sales in November,” said James. “In the service providers sector, spending also rose by 1.9% in December after a 2.0% gain in November.”
That’s a pleasing result, especially as the BSI includes spending on both goods and services, making it comparable to household consumption expenditure in Australian GDP, according to James.
As the largest component within Australian GDP, the acceleration in spending seen in the BSI is an encouraging result after underwhelming growth in household consumption in the June and September quarters last year.
James’ certainly thinks so, suggesting that the economy is “accelerating out of a flat spot experienced in mid-2016”.
“That is clear from the BSI as well yesterday’s jobs data and surveys covering manufacturing and services sector,” he says. “The Reserve Bank would be heartened by the latest data, giving policymakers more reasons to stay on the interest rate sidelines.”
Australia’s December quarter GDP report will be released on Wednesday, March 1.