by Craig James

Commonwealth Bank Business Sales Index

Economy-wide spending expanded for the 19th consecutive month in March according to a new survey. The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – rose by 0.6 per cent in trend terms in March, down from 0.7 per cent in February and 0.9 per cent in January. Despite the on-going expansion, it was the slowest growth of sales in seven months.

The more volatile seasonally adjusted estimate of spending also grew by 0.6 per cent in March after easing by 0.3 per cent in February. Annual growth slowed for the second month, down from 10.7 per cent to 9.7 per cent in the month.

The seasonally adjusted and trend estimates of the BSI results are derived via the SEASABS statistical program from the Australian Bureau of Statistics.

At a sectoral level, 17 of the 19 industry sectors expanded in trend terms in March, a similar result to February but down from 18 industry sectors in January. And for the seventh straight month, seven of the eight states and territories recorded firmer sales in trend terms in March.

The Commonwealth BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. The BSI covers spending broadly across the economy rather than just retail sales, including spending on automobiles, personal services and airlines.

What does it all mean?

Economy wide spending remains healthy although it has showed signs of consolidating in the past couple of months. More importantly the strength in activity is broad-based with the majority of sectors and regions reporting firmer sales. Certainly the outlook for the business sector has improved over the past few months.

In recent months the baton change from mining investment to home construction and consumer spending has become more tangible. And the labour market is now showing encouraging signs of turning around with almost 90,000 jobs being created in the first three months of the year. An ongoing lift in employment will be the cornerstone of a further lift in confidence.

The housing recovery continues to gather momentum, while rising wealth levels, low interest rates and a recovering share market are supporting consumer confidence and, in turn, spending.

We expect the Reserve Bank to remain on the interest rate sidelines. It is a case of so far, so good. Forward-looking indicators continue to point to a lift in activity, while downside risks are diminishing. Cash rates have likely bottomed. We are forecasting the first rate hike to take place in the December quarter.

What does the data show?

Economy-wide spending consolidated in March. The Commonwealth Bank Business Sales Indicator (BSI) rose by 0.6 per cent in March, the slowest pace in seven months, and down from 0.7 per cent in February, 0.9 per cent in January and gains of 1.0-1.2 per cent between October and January. Despite the slowdown, sales have now expanded for 19 straight months.

In annual terms, the BSI was up by 9.8 per cent in March, the slowest pace in five months and down from 10.4 per cent in February.

The seasonally-adjusted measure of sales lifted by 0.6 per cent in March after easing by 0.3 per cent in February, the fifth gain in six months. Annual growth also eased from 11.9 per cent in January to 10.7 per cent in February and to 9.7 per cent in March.

The Commonwealth BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. And in line with the practice of the Bureau of Statistics with its retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. The seasonally adjusted and trend BSI results are derived from the same SEASABS statistical software. This allows analysis of the broader underlying trends that may be hidden in the raw data.

Across sectors, 17 of the 19 industry sectors expanded in trend terms in March. Amongst the strongest sectors in March were Amusement & Entertainment (up 4.2 per cent), Professional Services & Membership Organisations (up 2.0 per cent) and Mail Order/Telephone Order Providers (up 1.6 per cent).

Spending fell only at Automobile/Vehicle Rentals and Airlines in March. Slower spending growth was identified across most industry sectors in March.

In annual terms in March, only four the 19 industry sectors contracted: Airlines, Automobile/Vehicle Rentals, Business Services, and Mail Order/Telephone Order Providers.

At the other end of the scale, sectors with strongest annual growth in March included Amusement & Entertainment, Wholesale Distributors & Manufacturers, Transportation, Hotels & Motels, Service Providers and Government Services.

Across the states and territories, sales rose in March in trend terms in all but the ACT (down by 5.5 per cent after falling a record 6.3 per cent in both January and February). Sales have now fallen for seven straight months in the ACT.

Of the other states & territories, leading the gains was Queensland (up 1.0 per cent), followed by NSW and Tasmania (both up 0.8 per cent), Western Australia (up 0.7 per cent), South Australia (up 0.6 per cent), Victoria (up 0.4 per cent) and Northern Territory (up 0.1 per cent).

The trend BSI has now risen for 34 months in the Northern Territory, for 33 straight months in Victoria, for 32 straight months in South Australia, for 24 straight months in Tasmania, and for 7 straight months in NSW and Queensland.

In annual terms, only the ACT had sales below a year ago. At the other end of the scale, growth was strongest in South Australia, Tasmania and Northern Territory.

What is the importance of the report?

The Commonwealth Bank releases its Business Sales Index around the 20th each month. The data provides a broader perspective of consumer spending. The Business Sales Indicator includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes & restaurants and as such is more comparable to the ABS Household Final Consumption Expenditure released on a quarterly basis. The Business Sales Indicator also covers businesses such as airlines, car dealers and utilities such as water and electricity companies as well as motels, business, professional and government services and wholesalers

What are the implications for interest rates and investors?

Interest rate settings are on hold and the global economy continues to recover, while on the domestic front, rising wealth levels and healthy confidence levels should keep Aussie consumers spending.

The Reserve Bank has retired to the sidelines. We believe that it will be reluctant to cut rates again unless global or domestic factors unexpectedly weaken. The Reserve Bank would be hopeful that the economy continues to strengthen in coming months, underpinned by super-low interest rates and momentum provided by home construction and sales.