Spending strengthens as low rates take hold

Low interest rates have buoyed spending and the strength is expected to hold in the lead up to Christmas, says CBA.

Shoppers in the Queen street mall, Brisbane. (Jono Searle)

The largest growth in spending for the year so far occurred in August, a signal interest rate cuts are starting to filter through to the economy.

In a report released this morning, the Commonwealth Bank said its Business Sales Indicator had risen 0.6 per cent, the fastest rate of acceleration recorded in nine months.

“Economy-wide spending has strengthened off the back of improving business and consumer confidence, low unemployment and ongoing low interest rates,” CommSec chief economist Craig James said.

“The preconditions remain in place for firmer spending in the lead-up to Christmas.”

For much of the year the BSI has shown nearly flat numbers, with August a return to form after the index averaged monthly growth of 0.5 per cent last year.

On a sector-by-sector basis, 13 of the 19 industries covered showed an expansion through August, although the biggest gain was recorded by government services.

In annual terms, three of the 19 sectors contracted, including airlines, transportation, and automobiles and vehicles. The biggest year-on-year gains were reaped by wholesale distributors and manufacturers, and hotels.

Sales rose in all six states, but fell in both territories.

The growth was led by Queensland and Victoria (+0.9 per cent), while New South Wales delivered results broadly in line with the average as sales lifted 0.5 per cent.

Mr James said the resolution of uncertainties surrounding the ‘Brexit’ referendum and the federal election had aided the results, which follow on the heels of the RBA’s August 2 rate cut.