New report shows even discounts can’t get consumers spending

You only need to walk around a suburban supermarket to see that Australia’s retail sector is officially “on sale”, with every major retail chain offering big discounts to lure customers.

But a new report from Commonwealth Bank tracking credit and debit card transactions around Australia reveals some bad news for retailers – the discounts just aren’t working.

The bank’s Business Sales Indicator was flat in May after a similar result in April, meaning annual sales growth is now running at about 3.4% – the lowest level in 11 months.

In an example of just how frugal customers have become, the sector to enjoy the biggest sales growth was the repair sector, which enjoyed a 1.8% sales increase in May. The next best performing sectors were services providers (up 1%) and the amusement and entertainment sector (up 0.7%).

“It’s not surprising to see that repair service businesses are thriving in the current retail environment as many consumers would rather get their current appliances repaired rather than investing more money into buying new products,” report author and CommSec chief economist Craig James said.

The worst-performing sector was the automobile and vehicle sector, which saw sales fall 2.3% in May. Mail order and telephone service providers saw sales drop 0.8%, while the “miscellaneous services” sector was down by the same amount.

Looking at the data over in annual trend terms, spending growth was strongest in the ACT (up 8.8%), followed by teh Northern Territory (up 8.3%) and NSW (up 4.7%).

The weakest states were South Australia (no growth) followed by Tasmania (up 0.4%), Victoria (up 1.2%), Queensland (up 1.6%) and Western Australia (3.1%).

James says the report vindicates the Reserve Bank’s decision to leave rates on hold in early June, and he suggest rates are likely to remain on hold in July and for “the foreseeable future”.

“Unless we see signs of improvement in consumer and business spending in the near-term there are good reasons for the Reserve Bank to stay on the sidelines.”