Consumer spending across the country is continuing to rise, but as businesses become more optimistic, experts are warning consumer confidence remains fragile.
The Commonwealth Bank Business Sales Indicator (BSI) showed a 1.9 percent increase in sales last month, making it the third increase in the past four months. The BSI also found overall spending to be now up to 5.9 percent, the biggest annual gain in over two years.
Commonwealth Bank executive general manager of local business banking Matt Comyn attributes May’s results to the RBA’s larger-than-expected cash rate reduction, which has clearly had an effect on the amount of money being spent at businesses across the country. While consumer sentiment remains unsteady, Comyn belives the results for the year so far have been encouraging.
“The momentum we have experienced this year demonstrates that small increases in confidence can translate to consumers’ willingness to spend. The results recorded in May are therefore promising for Aussie businesses – particularly based on other positive news for the economy this month – and point towards what is hoped to be continued growth in consumer spending,” he said.
It’s not all rosy though; despite stronger results at home, rocky international markets are continuing to dent local consumer confidence.
CommSec chief economist and BSI author Craig James added the fragility of the ongoing recovery is reflected in the May figures.
“We saw a 1.9 percent increase in seasonally adjusted terms this month, which is a solid growth. However, this is yet to flow through on our trend estimates, with the BSI posting the slowest trend growth rate in nine months,” he said.
According to James, consumer confidence is still fragile, due mainly to international factors and general uncertainty about a number of domestic economic issues. So while spending is continuing to rise, uncertainty remains as to whether momentum will be maintained.
“The good news is that interest rates have been cut twice in two months. If the international environment settles and wider fears are allayed, then the outlook for consumer spending would markedly improve.”
The strongest results recorded by the BSI state-wide was in South Australia, followed by Queensland, New South Wales, Western Australia and Victoria have all continued to rise. For the first time in eight months, the North Terriority had weaker sales in May, and Tasmania also experienced a dip.