Economists warn of slow consumer spending recovery

Retailers continue to face an uncertain fate in light of the latest Commonwealth Bank Business Sales Indicator, which reported no change in October after weakening for 10 consecutive months.

The Commonwealth Bank BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities.

The September survey indicated a recovery in spending, but the October results have quashed that prediction.

The BSI fell by 3.9% in trend terms over the past year, the biggest annual decline since data was first collected six years ago.

CommSec chief economist Craig James says the results highlight the weakness in spending across the economy, but there’s still hope for certain sectors.

“Consumers remain very selective and continue to shop for the bargains, so retailers will continue to face downward pressure on margins,” James says.

“But we are seeing certain sectors and states continuing their positive growth trajectory and there has also been a rebound in spending in certain states such as NSW and in sectors such as business services.”

In annual terms, 11 of the 20 sectors studied reported growth in October, with personal services leading the way followed by utilities, and hotels and motels.

The strongest sector was businesses services, up 1.1%, followed by contracted services and personal services providers, both up 1%.

Automobiles and vehicles recorded no change in spending in October, after falling for the previous nine months.

The weakest sector was mail order and telephone order providers, down 2%, while miscellaneous stores were down by 8%.

Only three of the eight states and territories recorded negative monthly trend growth in October. They were Queensland, Victoria and South Australia.

Spending rose in the Northern Territory, WA, Tasmania, NSW and the ACT.

Commsec economist Savanth Sebastian says he’s unsurprised by the October figures, as it will take time for consumer confidence to increase.

“That latest rate hike certainly won’t help. The retail sector is likely to remain relatively depressed in the lead-up to Christmas,” Sebastian says.

“If anything, it’s just a matter of retailers continuing to discount and attempt to improve turnover in the near-term.”