Business sales index suggests purse strings are starting to open

The beginning of a recovery in consumer spending may be in sight, after a monthly gauge of debit and credit card transactions recorded its lowest fall in four months and the strongest consumer spending in half a year.

The Commonwealth Bank Business Sales Indicator fell just 0.1% in trend terms, but rose by 0.6% in seasonally adjusted terms during August.

Performance across the 20 sectors recorded by the BSI were mixed, with automobiles and vehicles, along with contract services, seeing the weakest results. However, amusement and entertainment continues to perform well.

CommSec economist and report author Craig James says while this is by no means a sign that spending has returned to normal, it is encouraging for businesses to see the largest improvement in six months.

“I don’t think businesses will get too far ahead of themselves. It’s improving, but it’s always a question of news flow. If you get an improvement in the news flow, then we’ll start to see people spending again.”

“Perhaps this is a reflection of the improved consumer confidence that we saw during this month.”

The result comes after the BSI fell by 0.3% in July, and 0.5% in June.

The weakest result was in contracted services, seeing a 0.8% decline in August, the largest in 18 months, followed by automobiles and vehicles, down by 0.7%. BSI notes this sector was hit by the restricted flow of cars from Japan following the tsunami earlier this year.

The amusement and entertainment category, which includes cinemas, bowling alleys and golf courses, recorded a 0.8% increase in trend terms, followed by business services up 0.7%, repair services up 0.6% and transportation, up by 0.4%.

James also notes that only seven of the 20 categories recorded a contraction, down from eight in July, and nine in June.

Three of the states and territories recorded weaker sales in trend terms, down from five in July. Western Australia recorded a 0.5% decline, followed by South Australia, down 0.4%, and Queensland, down 0.1%. The Northern Territory was the strongest, up by 0.9%, followed by Tasmania, up by 0.2%, and Victoria, up by 01%.

James says the results should provide some encouragement that with the relatively stable economy, consumers are ready to spend when the time is right.

“This survey is covering the latter part of August, so that was the time that did look as though things were improving somewhat in the retail environment.”

“People won’t get too far ahead of themselves. The fundamentals for spending are positive, the job market is in reasonable shape, and wages are rising. I think what’s happened is that purse strings are opening slightly, instead of just being completely snapped shut.”