Spending across the Australian economy is stalling

Photo by Paul Gilham/Getty Images

Spending levels across the Australian economy stalled last month, according to the latest Business Sales Indicator (BSI) released by the Commonwealth Bank on Monday.

The BSI — a measure on the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities over a particular month — came in flat in April in trend terms, decelerating further following a downwardly-revised 0.1% increase reported in March.

Not only a poor result, but well below the 0.5% average monthly increase that has been seen over the prior 12 months.

As a result of the recent weakness, the annual rate slowed to a four-month low of 5.8%, down marginally on the 5.9% pace reported in the 12 months to March.

The recent slowdown in the BSI is captured in the chart below from the Commonwealth Bank.

Source: Commsec

While the BSI only captures spending through Commonwealth Bank merchant facilities, given it is the largest retail bank in Australia, the spending patterns it sees are likely to be a reasonable reflection of broader spending patterns across the Australian economy.

Making the deceleration in the BSI all the more concerning, it follows a series of weak retail sales reports that have been released in Australia.

According to the most recent retail sales report released by the ABS earlier this month, nominal sales fell for a second consecutive month in March, sliding by 0.1% in seasonally-adjusted terms. That left annual growth in retail sales at just 2%, the lowest level seen in four years.

Given the BSI captures spending on both retail goods and services, it suggests that household consumption, the largest component within the Australian economy and an area that has been tasked to power economic growth in the year’s ahead, may be also starting to weaken.

That’s not a great sign ahead of the release of Australia’s March quarter GDP report early next month.

Commsec, the authors of the report, say that the BSAI includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes and restaurants, and as such is more comparable to the ABS Household Final Consumption Expenditure released on a quarterly basis.

Craig James, chief economist at Commsec, said that uncertainty ahead of the federal budget, slower wage growth, recent declines in consumer sentiment and the shifting time of Easter likely contributed to the weak result.

“The timing of Easter and school holidays may have affected spending levels and a clearer picture of economy-wide spending should emerge over the next couple of months,” he said.

“The softer spending data is in accordance with the consumer confidence – which has flattened in the last few months.”

According to Commsec, spending rose in 12 of the 19 industry sectors monitored in April.

The largest gains were reported in sales of Amusement and Entertainment, up 2%, while those in miscellaneous stores and across hotels and motels rose by 0.9% and 0.8% respectively.

At the other end of the spectrum, sales for government and business services fell by 1.8% and 0.6% respectively, perhaps reflecting caution ahead of the federal budget.

From a state and territory perspective, sales increase in all locations bar New South Wales where they fell by 0.3%. The strongest increases were reported in Northern Territory, Tasmania and Western Australia at 0.9%, 0.7% and 0.5% respectively.

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