Spending levels across the Australian economy accelerated in November, leaving annual growth above its long-run trend.
According to the latest Business Sales Indicator (BSI) from the Commonwealth Bank, economy-wide spending rose by 0.6% in trend terms, leaving annual growth at 6.8%, above the 6.1% average seen over the past 13 years.
It previously rose by 0.5% in October, and is continuing to accelerate from the slowdown seen earlier this year.
This chart from Commsec shows the trend change in the BSI compared to spending levels at retailers since the start of 2016.
The BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities, measuring spending on both goods and services.
While it only captures card transactions processed by the CBA, as Australia’s largest retail bank, it’s likely to reflect spending patterns across the broader Australian economy.
As it includes spending on both goods and services, the bank says it is comparable to nominal household consumption in Australia’s quarterly GDP report. Given the ongoing movement towards electronic payments from cash, the BSI likely overstates changes in total spending levels, if only by a little.
Fitting with the increase in the headline BSI in November, Commsec said that spending levels increased in 17 of 19 industries monitored last month.
“The biggest lift in sales occurred in the automobiles and vehicles sector, up 1.9%, said Ryan Felsman, senior economist at Commsec. “The most recent inflation data from the Australian Bureau of Statistics shows that car prices are at 30-year lows.”
That increase followed separate data from the ABS which revealed a modest lift in new car sales in November, leaving annual sales volumes at the highest level on record.
Along with spending on vehicles, Felsman said there was also an impressive lift in business spending on services.
“The lift [was the] strongest gain in a year and reflects survey results showing Australian business conditions to be the best in 9 years with investment, sales and profitability all firm,” he said, referring to recent business confidence reports from the National Australia Bank.
At the other end of the spectrum, and providing renewed concern for retailers following a weak September, the only industries to report a decline in spending levels last month were both consumer-orientated.
“Mail and telephone order-related sales were down for a second consecutive month, falling by 0.4%,” said Felsman.
“Sales at combined retail and clothing stores remained soft, and were broadly unchanged in November — the weakest result in nine months.”
Not a great sign for the Christmas trading season, suggesting that the 0.5% bounce in the ABS’ official retail sales report for October may not last.
In the minutes of its December monetary policy meeting, the Reserve Bank of Australia said that liaison with retailers suggested that “moderate growth in consumption had continued into the December quarter”.
Just like the performance from the majority of industries, Commsec said sales rose in trend terms in all Australian states and territories during November.
“The strongest growth occurred in Northern Territory (+2.5%) followed by South Australia (0.9%), Queensland (+0.8%), Western Australia (+0.7%), Tasmania and New South Wales (+0.6%), and the ACT and Victoria (+0.4%),” Felsman said.
Over the year, the top three performers in November also outperformed with spending in the Northern Territory, South Australia and Queensland lifting by 17.9%, 9.6% and 9.2% respectively.
In comparison, spending in New South Wales — Australia’s most populous state — was the national laggard, increasing by a far smaller 5.0%.
While Australia’s retail sector remains a concern, the rebound in the BSI is a promising sign for household consumption in Australia’s December quarter GDP report, due for release in early February next year.
Mirroring the slowdown in the BSI, household consumption expenditure — the largest part of the Australian economy at a little under 60% — grew by a paltry 0.1% in volume terms in the September quarter, the weakest outcome since the global financial crisis.
With the BSI now starting to rebound, many, including policymakers at the RBA and in Canberra, will be hoping that consumption will follow suit in the current quarter.