Sales data shows slight improvement, but retail spending remains sluggish

Retail spending will not experience a sustained recovery unless there are a few months of stability in interest rates, the global economy recovers and the current political uncertainty fixes itself, the latest Commonwealth Bank Business Sales Indicator reveals.

CommSec chief economist Craig James says even though the results indicate a slight improvement in spending, retailers will continue to struggle until there is a sustained recovery in global economies.

“You have to look at the global economy, and interest rates. I believe these two factors are the key here, particularly interest rates as they went up sharply during the first half of this year.”

The July BSI, which tracks the value of credit and debit card transactions processed through the Commonwealth Bank’s point-of-sale terminals, recorded that annual growth slowed to just 1.5%. However, James says that result is actually a positive.

“Sales aren’t falling like they have in previous months, so it does look as though there’s some improvement happening. We’re not exactly jumping for joy, it’s weak, but sales aren’t falling to the extent they were a few months ago. We’ve seen an improvement.”

“It remains to be seen whether that improvement continues. Generally, people are in good shape, confidence is high, wages are picking up and the job market is doing well, but we still have this era of conservatism holding retailers back.”

The BSI shows that out of the 20 industries tracked, the utilities sector recorded the strongest spending with growth of 1.6% over July. Spending on personal service providers increased by 1.2%, while the weakest sectors were automobiles down 1.5%, followed by mail and telephone order providers down 1.3%. Retail stores were down 1.2%.

Five out of the eight states recorded falls in sales, with spending in Western Australia the weakest down 0.7%, followed by Victoria with sales down 0.4%. Queensland recorded the highest annual fall of 5.4%, with the tourism industry still suffering, although the ACT recorded the strongest annual growth at 3.3%.

Until global economies improve, James says customers will remain frugal and retailers need to do the best they can to survive.
“I think you have to look at the global economic uncertainty, and interest. I think if interest rates remain stable for the next few months, then people will perhaps feel more confident and go out there and spend, and get on with business.”

“If you look at the uncertainty surrounding the current political situation, I think that will be short-term. The more pressing concern is the global recovery, and all this talk about the US isn’t helping matters.”

James says there should be some pause before the upcoming Christmas season, which should give customers more confidence to begin spending for the holidays.

“If the RBA stays on the sideline with interest rates, and the job market continues to improve and the share market performs well, then we’ll have all our ducks in a line for heading into a better Christmas.”