Australia | Oct 20 2010
By Chris Shaw
Signs are emerging Australian consumer spending is beginning to stage a recovery, as the Commonwealth Bank Business Sales Indicator (BSI) has now risen in successive months. The BSI tracks the value of all credit and debit card transactions processed through Commonwealth Bank merchant facilities. As such, it could be regarded a key gauge of economy-wide spending.
For September the BSI rose by 0.2%, which followed a 0.1% rise in August. This marks the first successive monthly increases for 10 months. In trend terms the value of spending transactions fell in only four of 20 industries in September, an improvement from August when spending declined in five sectors. Business services was the strongest gainer in September with transactions rising by 1.5%, followed by a 1.2% gain in hotels and motels.
Only Victoria and the Australian Capital Territory reported negative monthly trend growth in September, while spending was strongest in New South Wales and Western Australia. In annual terms spending growth was strongest in WA and the Northern Territory and weakest in Victoria and Queensland.
CommSec chief economist Craig James suggests the BSI outcome is good news for businesses as it indicates a loosening of consumer purse strings. In James's view, this trend should continue if the Reserve Bank of Australia (RBA) stays on the sidelines with respect to interest rates, as this would increase the confidence of consumers with respect to lifting their spending.
The September BSI data support the RBA decision to leave rates on hold in October according to James, as it shows the domestic economy remains soft. This means the case for a rate hike last month wasn't proven beyond any doubt, while market pricing suggests there is only a 40% chance of a rate increase in November.
James notes despite the increase in the BSI over the past two months, the index is still well below year ago levels, having contracted by 3.0% in trend terms over this period. The BSI has underperformed the Australian Bureau of Statistics narrower retail trade series in the past six months in particular, highlighting the economy wide weakness in spending over the past year or more.
According to James, the recent modest recovery in spending reflects more fundamental factors such as stronger balance sheets and a firmer job market. The encouraging element of the data, in James's view, is that the spending pick-up has been broadly based, which implies no signs of a two-speed recovery in spending in Australia.
The fact BSI data have been weak over the past 12 months fits in with research by online data analysis group Datamonitor, which shows Australian consumers in the past year have made a greater effort to repay their credit card debts in full.
Datamonitor's research on Australian credit card customers shows 48.43% of consumers paid no interest on their credit cards in the past 12 months, up from 40.23% in 2009 and 39.07% in 2008.
In the view of Datamonitor's senior analyst Harry Senlitonga, this shift in consumer behaviour with respect to credit cards means a potential loss of revenue for Australian credit card issuers in the form of lower interest income.
If this trend continues Senlitonga suggests there could be a review of credit card prices across the industry. One possible outcome could be a fee income model, as such a model may prove to be more stable while also more profitable for card issuers.
Senlitonga also expects the trend towards paying less credit card interest is likely to spark further innovation in the market. One likely outcome in Senlitonga's view is for products designed specifically to target specific customer segments.
