Electronic card spending fell at the end of last year which might be bad news for retail. Photo / 123rf
Electronic card spending fell at the end of last year which might be bad news for retail. Photo / 123rf
Retail spending in December was down on the previous year despite population growth and steep price rises, a sign many households have put away their credit cards.
Spending was down 0.6 per cent on the same month in 2022 and Westpac senior economist Satish Ranchhod said during the past 12 months, spending levels have effectively been tracking sideways.
‘‘That’s despite a population growth of around 2 per cent and price rises of close to 5 per cent. Putting that together signals that many New Zealand households are keeping their credit cards in their pocket.”
December 2023 was down 2 per cent on November with spending in all retail categories taking a hit last month, according to new data from Stats NZ.
Stats NZ data on electronic card transactions for December 2023 showed spending in the retail industries decreased by $132 million (2 per cent) while spending in core retail was down $119m (2 per cent).
Ranchhod said the drop in December spending is seasonal as spending tends to ramp up in November then soften leading up to Christmas.
He said, “In part that softness is likely to reflect the growing prevalence of sales events like ‘Black Friday’ in the New Zealand marketplace.”
However, ASB Bank senior economist Kim Mundy said the drop in spending aligned with the bank’s expectations: “Card spending fell sharply in December, as expected.
“Households’ budgets have been significantly impacted by rising debt servicing costs and broad cost of living pressures,” Mundy said.
Spending on durables (whiteware and appliances) and fuel had the biggest slump from November to December, down $33m (2 per cent) and $19m (3.4 per cent) respectively.
Spending on apparel was down 2.9 per cent ($10m) while motor vehicle spending was down 2.2 per cent ($4.6m).
Consumables spending was flat despite rising inflation and population growth, down $1.6m (0.1 per cent) on November 2023.
Ranchhod said consumers seem to be “choosing to keep cash in their pocket, particularly for things like durables.
“That reflects household challenges in inflation and interest rates,” Ranchhod said.
First Retail managing director Chris Wilkinson said the result is consistent with what the group has seen across New Zealand’s main centres and regions.
“Consumers were being cautious, purposeful and restrained in their shopping decisions off the back of a year of strong inflation and high interest rates that affect many households,” Wilkinson said.
“There will be some uncertainty from consumers post-election around what a change in government will mean for the public sector and government projects which are major employers across the country.”
The total value of electronic card spending, including the two non-retail categories (services and other non-retail) was down $53m (0.6 per cent) from November 2023.
In actual terms, cardholders made 182 million transactions across all industries in December 2023, with an average value of $58 per transaction. The total amount spent using electronic cards was $10.6 billion.
Hospitality spending was up 3.3 percent ($45m) between December 2022 and December 2023.
Ranchhod said hospitality spending growth is modest: “While international tourist numbers are continuing to push higher, New Zealanders remain cautious about their spending on activities like dining out.”
Satish Ranchhod, senior economist at Westpac Bank. Photo / NZME
Wilkinson said, “We know the shift in spend from goods to experiences (hospitality and entertainment) continues to play out and is reflected in the spending data.”
He said, “Price increases that have been necessary across that category as businesses have navigated increased ingredient and operating costs and been forced to pass these on. That likely means that category has been standing still in terms of visitation and volume, but at least operators have been able to protect some margin through these pricing adjustments.”
Ranchhod said the data “indicates we’re likely to see soft spending for retailers in the coming year” as consumers deal with mounting financial pressure.
“Consumer prices have risen strongly over the past year. There’s also been related increases in borrowing costs. Those increases have been sucking a lot of cash out of households’ wallets, constraining discretionary spending,” Ranchhod said.
First Retail managing director Chris Wilkinson. Photo / Mark Mitchell
“Today’s data reinforces the picture of flagging momentum in New Zealand’s household sector.”
The strength of the labour market is a key area to watch as unemployment is set to rise Ranchhod said.
“While economic growth has slowed, unemployment has remained low and that is likely to have supported spending appetites. However, with economic conditions cooling, unemployment is set to push higher over 2024 and wage growth is set to slow.
“That means the risks for spending over the new year are to the downside.”
Mundy said a rise in unemployment in late 2023 “will have done little to help consumers’ willingness to spend” and doesn’t expect the 2024 outlook to improve.
“Strong population growth remains the key support to retail spending but has so far been unable to offset the impact of significantly trimmed household budgets,” she said.
“Substantial mortgage relief appears to be some way off and a further weakening in the labour market is likely to be an additional headwind to the retail sector over 2024.”
Mundy added, “Ongoing subdued demand is consistent with our view that the official cash rate has peaked and that the next move will be lower in August on our forecast.”
She said however there are lingering upside risks to the inflation outlook: “The Reserve Bank’s (RBNZ) determination to make sure inflation falls back to around the mid-point of the inflation target suggests that the RBNZ won’t take the decision to ease monetary policy lightly.”
Alka Prasad is an Auckland-based business reporter covering small business and retail.
