Retail spending: Clothes shopping on hold as interest rates bite

Card spending data shows the economy slowing as higher interest rates bite.

Retail spending fell sharply in September, the purchase of new clothes leading the slowdown.

Figures for monthly electronic card transactions, released by Stats NZ, showed the apparel category down by 2.8 per cent for the month.

Spending on durables (including household appliances and furniture) was down 1.2 per cent, motor vehicles (excluding fuel) were down 1.1 per cent.

“It’s clear that households’ spending appetites are cooling,” Westpac senior economist Satish Ranchhod said.

Spending in the September quarter as a whole was up 4 per cent on the same period last year. However, the population grew by more than 2 per cent over the past year, and consumer prices rose by around 6 per cent, he noted.

“Putting those factors together, households are splashing out more cash, but taking fewer goods home with them.”

That softness in spending highlighted that households’ spending power had been eroded by a large increase in consumer prices as well as the related increases in interest rates.

“There’s been notable weakness in spending on items such as household furnishings, which has been trending down for several months now,” he said.

“Looking ahead, we expect household spending will continue to cool as we head into the new year.”

Consumer prices continued to rise rapidly.

“At the same time, increasing numbers of borrowers are rolling on to higher fixed mortgage rates. The combination of those factors will be a powerful brake on household spending. Helping to offset some of those pressures is the strength of the labour market (unemployment is just 3.6 per cent) and healthy household balance sheets. Nevertheless, a period of softer spending seems likely.”

The total value of electronic card spending, including the two non-retail categories (services and other non-retail), decreased from August 2023, down $6.7 million (0.1 per cent), Stats NZ said.

Across the September quarter, spending in the retail industries increased 0.2 per cent. The non-retail (excluding services) category was up $38m (0.6 per cent) and the services category was up $12m (1.1 per cent).

The total value of electronic card spending for the quarter, including the two non-retail categories (services and other non-retail) increased by $249m (1 per cent) compared with the June 2023 quarter.