By Andrew Nelson
Australian business sales are continuing to deteriorate, with the latest Commonwealth Bank Business Sales Indicator (BSI) showing that already cautious consumers are continuing to adopt a more and more conservative outlook on personal spending. As one may well imagine, such conservative consumer spending behaviour is now starting to weigh on businesses and their sales performances.
While the 0.4% decline in the BSI in seasonally adjusted terms for August wasn’t as bad as the 5.4% drop in July, the measure is still marching along a downward path. The BSI is the Commonwealth Bank‘s measure of economy-wide spending. The bank looks to track the value of credit and debit card transactions processed through its own point-of-sale terminals, which it says is a sample of roughly 30% of the Australian market.
According to Gary McGrath from the Commonwealth Bank, the continued downturn in spending is clearly demonstrating that an already cautious consumer has now moved into even more conservative territory.
“Even though our economy is in good shape, consumers overall don’t see the need to spend and they aren’t being given any reason to do so, meaning it’s more than likely they will continue to hold on to their money. This is also characterised by the fact that spending on 'experiences' – something that has been far more prominent – has also fallen, such as in the Amusement and Entertainment space, which had been a strong performer until recently,” he said.
His advice for businesses is to make sure they remain in a position to be able to deal with a lower number of customers and transactions for the time being. A good move would be to have a close look at the business plan to find ways to extract more from productivity and efficiency in order to reduce costs and maintain a healthy balance sheet.
CommSec Chief Economist Craig James, author of the BSI, said the case for further monetary stimulus is certainly supported by this latest read, with businesses facing a difficult task in bringing consumers back to what are more regular spending patterns.
“Sales performance is struggling and clearly something is needed to encourage further spending throughout the economy. Even in the resources-rich state of Western Australia we have been witnessing a gradual softening in sales figures since earlier in the year, demonstrating the longer-term effects of weak consumer confidence,” said James.
The team from CBA also note that the weakness is spreading to more industries, as while the July read showed pullbacks across seven sectors, the August figures indicated the pullback has now reached across ten industry sectors. According to the report, the weakest sectors in August were Government Services, Transportation, Automobile & Vehicles and Airlines.
The strongest monthly trend increase in sales occurred in Mail Order & Telephone Order Providers, Wholesale Distributors and Manufacturers and Clothing Stores.
The good news, if there is any to be taken from the latest BSI, is that only three states booked weaker sales, in trend terms, in August. NSW was down by 1%, Victoria pulled back 0.4% and Western Australia by 0.1%.The Northern Territory proved the most resilient, with sales up 0.9%, while South Australia and Tasmania both edged up 0.7% and Queensland and the ACT ticked 0.1% higher.
Things are looking just a little better in annual terms, with CBA reporting that no state or territory saw sales below the level of a year ago. The strongest level of growth was posted in South Australia, which was up 16.0% in annual terms, while sales in the ACT have lifted 11.3%, with Queensland up 10.1%, the Northern Territory up 8.4%, while Western Australia was 7.8% higher.
“The soft spending figures are in line with other data showing conservative consumer behaviour, including the fact that the average credit card balance is up by just 0.2% on a year ago and data showing that the use of debit cards continues to surge,” said Mr James.
“It’s these sorts of statistics that businesses will be keeping a close eye on in order to understand today’s smart consumer; those that can adapt and tailor their offers for these individuals are those that will ultimately still perform strongly in this market.”
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