CommSec business sales indicator falls in April, highlights worries of interest rate hikes

An indicator of business sales has fallen for the 17th consecutive month, underlining the fragile state of the economy and how susceptible both retailers and consumers are to interest rate hikes.

The results of the latest Commonwealth Bank Business Sales Indicator also come as Bank of Queensland chief executive David Liddy has said another interest rate rise would “hurt like hell”, and that the state’s economy is at its worst point in years.

CommSec chief economist Craig James says the BSI, which tracks credit and debit card transactions, fell by 0.2% in trend terms in April. This comes after three monthly falls during the March quarter, suggesting weakness in the retail sector is ongoing.

But James says while “at face value” there has been no improvement, the BSI does not take into account the late Easter public holiday, which could have delayed sales.

“Easter did fall in March last year, and this year it was really late in April, and that tends to convolute the data set,” CommSec economist Savanth Sebastian says.

“But the underlying trend is that activity levels are weak, the economy has lost some momentum and isn’t shooting the lights out. The weakness in retail store sales seems to suggest that discounting is here to stay.”

Sebastian also says the prospect of another interest rate rise could deliver a shock to consumer confidence, and may drag down sales even further.

“It really depends on when that hike takes place. If it’s in the next month or two, it comes when the economy is going sideways. The last thing you need in this cycle is a rate hike that could derail any short-term recovery.”

But it isn’t all bad news. In fact, if the performance of the Retail Stores index is to be excluded, then the BSI was actually up by 0.3% in April. This would be the strongest improvement since November 2009.

Even more encouraging is the fact only four of the 20 industry sectors recorded in the index contracted in April, down from five sectors in March. The weakest was mail order and telephone order providers, down 14.4%, while retail stores are down by 8.4% and automobile and vehicle sales down 6.9%.

However, contracted services rose by 13.2%, while amusement and entertainment was up by 9.2%. Professional services and membership organisations were up by 8.9%.

According to the index there has been a “significant deterioration” in New South Wales spending during the past four months, with the state recording the weakest result in April – sales were down 2.1%. Queensland was next, down by 1.1%, while South Australia and Victoria followed with sales down 0.8% and 0.5% respectively.

The Australian Capital Territory recorded the strongest result, up by 0.5%, while Northern Territory and Tasmania sales were up by 0.2% and 0.1% respectively.

However, the results still represent a significant roadblock to economic growth – retail sales are stagnant, with business owners complaining that interest rate rises could put them out of business.

Such is the rhetoric of Bank of Queensland chief executive David Liddy, who has told The Australian that another interest rate rise will push Queensland’s economy even further behind.

“I think the state’s economy is running at about six different speeds, because the resources sector is doing well, the manufacturing industry supporting mining is doing okay, and so is the services sector,” he said.

“Tourism is at a crisis point and property’s not far from that.”