The good news just keeps rolling in for the Australian economy.
Employment has surged over the past three months and job advertisements suggest there’s more solid hiring to come. And retail sales, after a prolonged soft patch over recent years, have recorded solid back-to-back gains in April and May, hinting that improving labour market conditions may be delivering a welcome rebound in household spending.
It’s all looking very promising.
Well, the latest Business Sales Indicator (BSI) from the Commonwealth has just delivered another pleasing signal on the economy with spending levels ratcheting higher once again in June.
According to the bank, spending on both goods and services jumped by 0.7% in trend terms last month, leaving it up an impressive 9% on the levels of a year earlier.
The BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities, capturing nominal spending patterns across the country. Given it captures spending on both goods and services, Commbank says the BSI is a comparable measure on household final consumption expenditure, the largest component within Australian GDP.
While it only captures transactions put through Commbank terminals, as Australia’s largest retail bank, it’s a more than useful guide on measuring broader spending patterns across the Australian economy.
And the BSI says spending has grown 9% in a year. Just look at the chart below.
A very promising sign, even if it’s likely to be slightly inflated by the continued switch away from cash to card payments.
“All the data is lining up,” said Craig James, chief economist at Commsec, following the release of the report. “Businesses are doing well and spending. Businesses are also hiring. And there are more signs that consumers are spending.”
James says the latest BSI fits with “anecdotal” evidence of firmer spending noted by the Reserve Bank Board in its July meeting minutes.
Like an increasing number of other indicators in recent months, spending levels were strong across the country.
Queensland, at 1.2%, registered the largest lift in spending last month, outpacing gains of 0.9%, 0.7% and 0.6% in the Northern Territory, New South Wales and South Australia. Spending in Tasmania and Western Australia increased by 0.5% apiece, while in Victoria and the ACT it rose by 0.4% and 0.3% respectively.
Queensland also registered the strongest increase in spending from a year earlier at 11.3%. Victoria and South Australia, at 10.8% and 10.2% respectively, also logged double-digit gains.
New South Wales, Australia’s most populous state, saw spending lift 8.3% from a year earlier. All other states and territories saw spending levels increase by at least 7.9% over the year.
Mirroring the geographic performance, spending increased across 18 of 19 categories during the month, the same result seen over the year.
Given the broad-based strength, James says the BSI confirms that the economy is doing well.
However, like many others, he doesn’t believe that the Australian requires higher interest rates just yet.
“There is still a fair step to a lift in the cash rate,” he says. “The Reserve Bank needs to be confident that inflation is headed higher, and one key driver of this would be higher wage growth.”
We’ll find out more on that front over the next month with Australian jobs, inflation and wage data all scheduled for release.