Spending across the Australian economy slowed sharply last month

Photo: iStock

Now here’s some unwelcome news on the health of the Australian economy, especially following the release of last week’s disappointing jobs report for February from the Australian Bureau of Statistics (ABS).

Spending growth across the Australian economy slowed sharply last month, according the latest Commonwealth Bank Business Sales Indicator (BSI) released today, expanding at the slowest pace seen in two years in February.

The BSI measures the value of credit and debit card transactions processed through Commonwealth Bank point-of-sale terminals, capturing spending across the broader Australian economy on both goods and services.

While it only captures spending patterns from the Commonwealth Bank, as the largest retail bank in Australia, the BSI can be used to extrapolate broader trends across the economy.

And in February, the news was not great.

The BSI grew by just 0.1%, continuing to decelerate after a period of strength in late 2016.

Source: Commonwealth Bank

That previous strength just happened to correspond with with a noticeable lift in household consumption expenditure — the largest component within Australian GDP — in the final quarter of last year, largely driven by a decline in the household savings ratio which raised questions over whether the strength could continue in light of weak wage growth and elevated levels of unemployment and underemployment right now.

The BSI — in nominal terms at least — suggests it hasn’t, providing fresh concerns about the outlook for economic activity in the first three months of 2017.

“While spending is rising more modestly, that was to be expected as the growth pace late last year was unsustainable,” said Craig James, chief economist at Commsec.

James says the BSI is comparable to the ABS household final consumption expenditure figure released in the GDP report.

Mirroring the slowdown in the monthly data, the annual pace of sale growth also slowed in trend terms, increasing by 5% over the past 12 months, down from 5.3% in January.

It’s also worthwhile remembering that many Australians are increasingly using cards, rather than cash, to pay for purchases, so spending through electronic terminals may actually be higher that total spending on goods and services.

According to Commsec, all of Australia’s states and territories saw sales lift from a year earlier, led by South Australia where they grew by a healthy 9%.

The South Aussies were followed by the ACT (+7.3%), Tasmania (+7.0%), Western Australia (+6.1%), Queensland (+5.8%), New South Wales (+4.5%), Victoria (+3.7%) and the Northern Territory where sales grew by just 0.7%.

The relative underperformance from New South Wales and Victoria — those states where house prices recorded the largest increases over the past 12 months — is interesting, casting some doubt as to whether the wealth effect from higher house prices is translating to increased confidence to spend on goods and services.

It also suggests that higher household indebtedness to fund home purchases may also be influencing spending patterns in Australia’s most populace and economically important states.

By industry type, Commsec said that only 3 of 19 sectors analysed saw sales levels decline over the past 12 months.

“These were mail order/telephone order providers, transportation and retail stores,” it said.

While the former is understandable given the shift to internet-based commerce in recent years, the weakness in the latter two components — transportation and retailers — is again a somewhat concerning sign on the health of the economy at present.

Keeping those concerns contained for the moment, Commsec said that spending at the remaining 16 industries covered in the BSI all grew over the past year, led by the Hotels and Motels sector where sales lifted by 15.1%.

Spending at service providers and on automobiles and vehicles both grew by more than 12% over the same period.

Despite some concerning trends in the February report, James remains optimistic on the outlook for spending in the period ahead.

“Looking ahead, consumer spending will be supported by low interest rates and the wealth effect of higher home prices. And business spending will be supported by the recent solid lift in profits and high cash levels,” he says.

Perhaps creating further caution over the weak result, it be remembered that the timing of the Lunar New Year holidays in China — now an important consideration given the record-number of Chinese tourists who are currently visiting our shores — may have also impacted the February result.

Still, given the recent deceleration in spending growth, there’s sure to be plenty of eyes on this report when it’s released again in one month’s time.

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