Christmas retail on in Auckland City, and Commercial Bay. Photo / Alex Burton
Christmas retail on in Auckland City, and Commercial Bay. Photo / Alex Burton
Muted end-of-year spending for retail marks a challenging year ahead, according to experts.
ASB senior economist Mark Smith said household spending is set to remain weak over 2023.
“The RBNZ is still expected to press forward with official cash rate (OCR) hikes in the coming months, but weakness in household spending could see eventual OCR cuts brought forward.”
Stats NZ data released today showed retail card spending in December dropped for the first time in nine months.
December saw a slow in spending across retail except for food and drinks.
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Electronic retail spending fell $166 million or 2.5 per cent last month compared to November 2022.
Stats NZ said that while spending last month actually rose in actual terms, the increase was smaller than usual for the Christmas season.
“The fall in retail card spending is large for a December month, and this month’s drop is the first in nine months,” Stats NZ business performance manager Ricky Ho said.
The only spending category to see a rise in spending was consumables which was up $39m from November 2022 (1.5 per cent), which Smith said is likely to have come from rising food prices.
The steepest drop in spending was for durables which was down $95m (5.7 per cent). The category includes furniture, hardware, and appliances and saw a rise in spending last October.
ASB economist Mark Smith. Photo / Supplied
“Rising interest rates, the reorientation of spending patterns and the weaker housing market backdrop should likely weigh on future durable spending,” Smith said.
Fuel spending dropped $26m (4.3 per cent) compared to the previous month, while spending on clothing and apparel was down $17m. Motor vehicles spending also fell by $6.1 million (2.9 per cent) last month, showing the smallest decrease in spending.
“Lower fuel prices will help support discretionary spending going forward,” Smith said.
Westpac senior economist Satish Ranchhod said households are under increasing financial pressure.
“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. Perhaps most importantly, mortgage interest rates have increased sharply over the past year,” he said.
“Increasing numbers of households now face refixing at substantially higher interest rates.”
Seasonally adjusted data shows spending in retail for the December 2022 quarter was up $110 million (0.6 per cent) compared to the September 2022 quarter.
Economist Satish Ranchhod from Westpac Bank. Photo / Greg Bowker
Spending on consumables was up the most compared to the September 2022 quarter, at a $154 million (2.1 per cent) increase.
Motor vehicles and clothing and apparel followed behind at a $17m (2.9 per cent) and $15m (1.4 per cent) rise respectively.
Spending on durables fell the most last quarter, down $74m (1.5 per cent) while fuel spending was down $197m (9.8 per cent).
Both Ranchhod and Smith agree that the slowed spending points to the public heeding advice from the Reserve Bank.
Ranchhod said today’s reported slow in spending comes alongside other signs that the economy is losing steam.
“This morning’s Real Estate Institute of New Zealand house price update showed a continued decline in house prices and sales, and we think there is more softness to come.”
He added that an update on business conditions earlier in the week pointed to weakening demand across the economy, along with reduced plans for hiring.
“For the RBNZ, the growing signs that demand is turning down are an important indication that the rapid interest rate increases over the past year are finally taking effect. However, we’re yet to see signs that inflation pressures are cooling.”
He said RBNZ therefore will continue hiking the cash rate over the coming months.
Smith said, “Weakness in household spending could see the RBNZ potentially scale back the 125bp of hikes it has signalled for early 2023, but the inflation outlook should take priority.
“The RBNZ is unlikely to wobble unless it is 110 per cent confident inflation will settle in the 1-3 per cent 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 brought forward.”
