Retail conditions improve but recovery still a long way off, business sales indicator reveals

Retailers are starting to see signs of recovery but frugal shoppers and the threat of rising interest rates are delaying major improvements, the latest Commonwealth Bank Business Sales Indicator has revealed.

The figures come a day after bookselling giant RedGroup Retail collapsed, highlighting volatility in traditional publishing and retail markets.

The BSI, which records the number and value of credit and debit card transactions made across CommBank’s networks, rose by a seasonally adjusted 0.5% in January.

On one level the result is encouraging. It is the third positive result during the past 11 months and given recent natural disasters CommBank executive general manager for local business banking Matt Comyn says the retail industry has performed well.

“These positive signs are pleasing, particularly as they take into account a number of economic setbacks that one would have expected to drive down sales,” Comyn said.

“We’ve seen many small businesses devastated by the recent floods and this was against the backdrop of the already weak levels of consumer confidence.
“Therefore, to see the biggest industry category of retail stores recording the largest gain across sectors and its biggest increase in 17 months is definitely good news.”

Retail stores were the largest beneficiaries, recording the biggest increase in 17 months and of all industries recorded through the BSI only three recorded a fall.

Contracted services were up by 1.2% in trend terms and up by 6.2% over the year – the sector includes trades such as electrical and carpentry services. Repair services and service provider sectors were up by 1.1%.

The amusement and entertainment sector recorded 0.5% growth, the highest reading in 15 months.
Mail order and telephone order providers recorded the best gain in over two years, rising by 0.6%.

Only two states recorded lower trend sales, with spending down 0.1% in Queensland Victoria.

Spending grew by 0.6% in New South Wales, followed by a 0.5% gain in Tasmania and a 0.3% gain in Western Australia.

But Comyn says there are still a number of risks facing retailers.

“The simple fact is that consumers will need to keep spending and in larger amounts if we are to see this recovery continue, particularly at smaller outlets where this continued support is so important,” he says.
“With consumers still cautious and many preferring to hang on to their money it looks to be a slow road ahead.”

CommSec economist Craig James said the figures overall provide cause for encouragement.

“The good news is that we have seen overall growth in sales in seasonally adjusted terms,” he says.

“And turning to the less volatile trend estimates another source of encouragement is the fact that the majority of industry sectors continue to record spending growth.

“In trend terms the value of spending transactions fell in only three of the 20 industries in January, down from eight sectors in November.”

James pointed out that with petrol prices high and the threat of interest rates looming in the second half of the year “consumers will remain fairly guarded”.