Australia | Jun 20 2012
By Andrew Nelson
The latest read on the Commonwealth Bank’s ((CBA)) Business Sales Indicator shows that business sales are up for the 10th straight month. Conversely, Dun & Bradstreet’s latest Consumer Credit Expectations Survey tells us people are too afraid to spend right now, preferring to save. The question is: can these two seemingly contradictory reads be reconciled?
We’ll start with CommBank’s Business Sales Indicator (BSI) which shows a 1.9% increase business sales across Australia in May, in seasonally adjusted terms. This turns out to be the third increase in sales in the past four months, with spending now up 5.9% on last year. The bank notes this is the largest annual gain in more than two years.
Commonwealth Bank’s Matt Comyn notes that while the results for the year are encouraging, Australian consumer sentiment remains unsteady. However – and here’s where things start making sense – in trend terms the BSI increased by only 0.3%, which is the measure’s slowest growth rate since September 2011.
Still, Comyn is heartened by the small steps that are being taken, noting that even small increases in confidence can translate to improved levels of spending. He points out that the May figures were helped by the RBA’s larger than expected rate cut, which he claims has positively effected on the amount of money being spent with Australian businesses.
CommSec Chief Economist and author of the BSI, Craig James, notes the fragility of the ongoing recovery is demonstrated by the May figures. While he admits a 1.9% lift in seasonally adjusted terms spend looks like solid growth, it has yet to flow though to trend estimates, confirming that the BSI is posting the slowest trend growth rate in nine months.
“Consumer confidence is still fragile, due mainly to international factors and general uncertainty about a number of domestic economic issues. So while spending is continuing to rise, there is still uncertainty about whether momentum will be maintained,” said James.
This is exactly the type of commentary that supports the latest findings from Dun & Bradstreet’s latest consumer credit survey, which shows 60% of Australians are worried about their current financial position, while more than 30% say they wouldn’t be able cover basic expenses for more than few week if they suddenly lost their job.
D&B report national household savings levels are at a 20-year high. Yet despite this, a third of low-income earners and a quarter older Australians would only be able to survive for up to a month if left without steady income. In fact, the survey shows that 69% of Australians earning less than $50,000 a year and 62% of consumers aged 50-64 remained concerned about their personal finances.
Dun & Bradstreet Director, Adam Siddique, notes that the more vulnerable demographics are under significant financial pressure, with the latest research clearly showing consumers are worried about money.
While he lays some of this at the door of the still lingering pessimism post the global financial crisis, he also notes that a large number of households are still simply living hand-to-mouth. This, he explains, is why national household savings levels are at a 20-year high, yet many are still worried about saving.
“Ten to 15 years ago consumers were more comfortable living with a lower savings to debt ratio. However, continued global economic uncertainty is weighing on Australian households and dissuading discretionary spending, credit usage and significant investments such as buying a property,” said Mr Siddique.
D&B’s data show that 53% of all consumers are less likely to spend money on entertainment and other non-essentials than they were 12 months ago. Similarly, 40% of consumers are less likely to use existing credit to buy non-essential items.
These figures fit well with the findings from CommBank, who notes the weakest performing sectors in May were clothing stores (down 0.7%), vehicle rentals and professional memberships (both down 0.2%). The findings are similar on annual terms, with the weakest sectors being motels and hotels (down 6.7%), followed by vehicle rentals (down 0.6%).
There is some good news, however. The were some decent trend increase in sales in May, with wholesale, distributors and manufacturers up 2.7%, amusement and entertainment up 1.8%, mail/telephone order providers up 1.5%. Contracted services and service providers also showed well, with both up around 1%.
In annual terms, D&B note that only four of the 20 industry sectors contracted in May, which a similar outcome to both March and April. The best performers were amusement and entertainment, up 21.2%. Notable mentions go to mail/telephone order providers, which were up 16.7%, retail stores were up 12.2%, and contracted services lifted 8.2%. Surprisingly, general retailers maintained traction, with store sales up 7.5% on a trend basis.
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