Consumers boost spending and saving

Retailers are benefiting from shoppers' increased spending. Photo / Chris Gorman

Cheaper fuel prices and lower interest rates have left more discretionary dollars in the back pocket.

Retailers are continuing to benefit from the boost to consumers' discretionary incomes from the fall in oil prices over the past year.

Spending charged to electronic cards, which captures about 70 per cent of retail sales, rose 1 per cent last month while core retail spending, which excludes fuel, rose 1.2 per cent.

Compared with February last year total retail spending charged to cards was up 3.8 per cent, but that masked an 11.4 per cent drop in spending on fuel and a 6.9 per cent rise in core retail spending.

"Notwithstanding the bounce in fuel prices over the last month or so, cheaper fuel has effectively left more money in consumers' pockets," said Westpac economist Michael Gordon.

"Consumers have taken this opportunity to both save more and spend more on other items. Annual growth in total retail spending is close to a two-year low, but for core spending is close to a three-year high."

ASB economist Nathan Penny said petrol prices rose around 8c over the month, after falling around 40c in the three months prior.

"So while prices rebounded to a degree over February, we expect the overall fall to continue to boost household incomes and in turn spending over 2015," Penny said. "Similarly, recent interest rate falls are also boosting disposable incomes. Moreover, lower interest rates are further boosting the housing market and associated spending categories ie durables spending."

Durables spending rose 1.3 per cent month-on-month and 5.2 per cent for the year.

Spending on consumables like food was flat on January but 6.4 per cent up on February last year, while apparel sales were up 2.7 per cent for the month but only 1.2 per cent on February last year. The hospitality sector enjoyed a 2.8 per cent rise last month, seasonally adjusted, and was 12.2 per cent higher that a year go.

Deutsche Bank chief economist Darren Gibbs said that even if it moderated significantly this month, core retail spending was likely to have grown more than 2 per cent in the March quarter compared with the December 2014 quarter.

"It is a mystery to us why anybody would think that the economy needs, or would benefit from, lower interest rates in such circumstances."

Penny said employment growth and strong net migration inflows would continue to support spending growth this year.

"The main exception to the rule is likely to come in rural areas where the low milk price will constrain incomes and spending."

On the up
• Spending on electronic cards rose 1% last month.
• Core retail spending, which excludes fuel, rose 1.2%.
• Total retail spending was up 3.8%, compared with February last year.