Business sales slide in July as consumers rein in their spending

The Commonwealth Bank Business Sales Indicator fell 5.4% in seasonally adjusted terms in July, while another survey shows the small business sector has become increasingly pessimistic about the economy.

The BSI tracks the value of credit and debit card transactions through CBA point-of-sale terminals, which make up approximately 30% of the Australian market.

The BSI fell 5.4% in seasonally adjusted terms in July, following a 3.1% gain in June and a 1.7% gain in May.

According to CommSec chief economist and BSI author Craig James, the trend figure for July reinforces the slowdown being witnessed in economy-wide spending.

“In trend terms, the picture was slightly more positive with a 0.1% gain in July and whilst this was the 12th consecutive increase, it was also the slowest gain since August 2011,” James says.

“Although consumers have been given more reasons to spend in recent months, confidence is still the key factor at play here.”

“With an end to the stimulus measures… and the Reserve Bank holding the cash rate steady in July, we have seen consumers return to their conservative ways.”

In trend terms, five of the industry sectors fell in July. Among the weakest were automobile and vehicles (down 0.7%), transportation (down 0.6%), and personal service providers (down 0.2%).

The strongest monthly trend increases occurred in mail order and telephone order providers (up 3.5%), service providers (up 3.3%) and wholesale distributors and manufacturers (up 1.7%).

Two of the states recorded weaker sales in trend terms in July – sales in Victoria fell by 0.2% while sales in NSW fell 0.1%.

The strongest results were in South Australia and the ACT (both up 0.8%) followed by the Northern Territory (up 0.7%), Tasmania (up 0.6%) and Queensland and WA (both up 0.4%).

The trend BSI has now risen for 13 straight months in Queensland, the Northern Territory and WA, and for 12 straight months in South Australia.

The survey comes on the back of the latest survey by the Australian Chamber of Commerce and Industry, which shows general business conditions in the small business sector continued to deteriorate in the June quarter.

According to ACCI, which surveyed 1850 small businesses, the sector has become increasingly pessimistic about the strength of the Australian economy.

The index of Expected Economic Performance over the next 12 months has edged lower, from 41.6 points to 41.3 during the June quarter, to be 2.7 points lower through the year.

Profit growth also remains deep in contractionary territory, with the index on profits continuing to trend down in the June quarter, while selling prices are expected to continue falling.

“Small businesses are concerned that while their selling prices have fallen to record low levels, their input costs remained elevated,” says Greg Evans, ACCI director of economics and industry.

“While growth in labour costs has slowed in recent quarters, these costs remained at high levels and have resulted in a further fall in small business employment.”

“Small business can expect further headwinds in coming months.”