Stats NZ says the seasonally adjusted spending fall in December was the first for nine months and was a 'large' fall for a December month; economists say consumers have taken on board Reserve Bank warnings about spending
By David Hargreaves
Retail card spending had quite a chunky drop last month on a seasonally-adjusted basis, which is perhaps a sign that the Reserve Bank's ramping up of interest rates is starting to have a dampening effect on consumers.
Westpac senior economist Satish Ranchhod said retail spending was softer than expected in December, "adding to signs that the domestic economy is turning down".
"It seems that New Zealand households are finally heeding the Reserve Bank Governor’s advice, with the latest retail update pointing to restraint in spending over the Christmas holiday period."
ASB senior economist Mark Smith said consumer spending "looks to have ended 2022 on a weak note and RBNZ warnings look to have been heeded".
"Moreover, our view remains that retail spending will struggle over 2023 given headwinds facing the sector."
Stats NZ business performance manager Ricky Ho said spending fell $166 million (2.5%) in December 2022 compared with November 2022, when adjusted for seasonal effects.
"The fall in retail card spending is large for a December month, and this month’s drop is the first in nine months," Ho said.
While December 2022 retail card spending rose in actual terms, the increase was smaller than those typically seen in past December months, he said.
Seasonal adjustment is the process of estimating and removing seasonal effects to allow comparison of data for adjacent months.
Stats NZ said spending fell across five of the six retail industries, with the largest fall being from sales of durables – down $95 million (5.7%). Durables includes items such as furniture, hardware, and appliances.
Spending on fuel and apparel (clothes and shoes) was down, $26 million (4.3%) and $17 million (4.7%) respectively.
The only spending category that saw an increase was groceries and liquor (consumables), up $39 million (1.5%).
Westpac's Ranchhod said the declines in spending were "particularly notable".
"For most of 2022, households were continuing to dial up their spending on discretionary items despite large price increases. Spending was also boosted by the return of international tourists to our shores.
"However, as we’ve been highlighting for some time, households’ finances are coming under increasing pressure on several big fronts. Continued rapid price increases are eroding their spending power. Falls in house prices have meant that many families have seen the value of their assets decline. And, perhaps most importantly, mortgage interest rates have increased sharply over the past year," he said.
ASB's Smith said weaker asset prices have hit household balance sheets and surging living costs are sapping household cashflows and eroding post-lockdown savings.
"The RBNZ has been explicit in noting that domestic spending will need to slow to get inflation down. If not, even higher interest rates will ensue. This warning looks to be hitting home, with weak household spending volumes a key contributor to the mild recession we expect for NZ in mid-2023 (if not earlier).
"Weakness in household spending could see the RBNZ potentially scale back the 125bp of [Official Cash Rate] hikes it has signalled for early 2023, but the inflation outlook should take priority and the RBNZ is unlikely to wobble unless it is 110% confident inflation will settle in the 1-3% inflation target range.
"OCR cuts are unlikely until the second half of 2024, but weakness in household spending activity and a cooling outlook for retail price inflation could see the timeframe for OCR cuts bought forward," Smith said.
The total value of electronic card spending, including the two non-retail categories (services and non-retail) fell $104 million (1.2%) in December 2022.
In actual terms, retail card spending was $8.1 billion, up 4.8% ($375 million) from December 2021.
“The largest contribution to retail card spending came from groceries and liquor which reached $3.1 billion in December 2022,” Ho said.
In terms of the December quarter, seasonally adjusted retail spending increased by $110 million (0.6%), following a 1.7% rise in the September 2022 quarter.
“Spending on groceries and liquor was the largest contributor to the rise in retail card spending in the December quarter,” Ho said.
Actual retail card spending was $22 billion in the December quarter, up 9.0% from the December 2021 quarter. Spending on hospitality had the largest increase, up $1.0 billion (37%) compared with the December 2021 quarter.
“As Covid restrictions eased over the last year, people were able to get out and about to cafes and bars, and to resume travelling,” Ho said.
Values are only available at the national level and are not adjusted for price changes.
Electronic card transaction data covers the use of credit or debit cards in shops or online and includes both the retail and services industries.
This story was originally published on Interest.co.nz and has been republished here with permission.
