Retail sales set to pick up in 2011

Economists have predicted an upturn in consumer spending despite a key indicator of retail sales recording its 13^th consecutive monthly fall in January.

The Commonwealth Bank Business Sales Indicator tracks the value of credit and debit card transactions processed through the bank’s point-of-sale terminals.

The BSI eased in January but analysis of the data shows a rise of 0.5% in seasonally adjusted terms after a similar gain in December.

“There are grounds for optimism in the seasonally adjusted figures … another source of encouragement is the fact that the majority of industry sectors recorded spending growth in trend terms,” CBA said in a statement.

Only three out of 20 industries recorded trend falls in January, compared to eight sectors in decline as recently as November, with retail recording the largest gain.

Matt Comyn, CBA executive general manager of local business banking, says recent gains are encouraging for retailers, particularly as they take into account some recent economic setbacks, namely the floods.

But Comyn says businesses are still facing an uphill battle to spark much-needed sales.

“Consumers will need to keep spending and in larger amounts if we are to see this recovery continue, particularly at smaller outlets,” he says.

“With consumers still cautious and many preferring to hang on to their money it looks to be a slow road ahead.”

In addition to retail, contract services also performed strongly, up 1.2% for the month and 6.2% over the year. Contracted services include electrical services, carpenters and landscape services.

Repair services and service providers were up 1.1% while the amusement and entertainment sector posted growth of 0.5%, its best reading in 15 months.

The weakest sectors in January were miscellaneous stores down 1.2%, hotels and motels down 0.4% and government services down 0.1%.

A breakdown of states and territories reveals sales were down in Queensland and Victoria as a result of floods or Cyclone Yasi while spending increased the most in NSW, Tasmania and WA.

Craig James, CBA chief economist and author of the BSI, said the figures appear to show that the economy is on the road to recovery.

“However with high fuel prices and the prospect of a rise in both interest rates and the price of food consumers will remain fairly guarded,” James said.

The latest Roy Morgan Consumer Confidence Rating reveals consumer confidence fell for the fourth consecutive week and is now 10.4 points lower than a year ago.

Roy Morgan says the fall has been driven by Australians’ increasing worries about the economy during the next 12 months and the next five years.

According to the report 57% of Australians believe now is a good time to buy, down 3% and 18% believe now is a bad time to buy, up 4%.

Gary Morgan, executive chairman of Roy Morgan, says the recent spate of natural disasters around the country is having a huge financial impact on Australians and that will have a knock-on effect on consumer confidence.

“Many food crops have been wiped out and will add to inflation while paying for reconstruction is likely to hit the hip pocket of many working Australians,” Morgan says.