Consumer spending points to slowing economy

Darren Gibbs

Weaker consumer spending in May adds to the evidence that the economy is slowing.

Retail sales continued the saw-tooth pattern of recent months, falling 0.6 per cent between April and May.

But Statistics New Zealand warned that its seasonal adjustment of the movement might have been thrown out by the fact that this year the entire Easter weekend fell in March, which is unusual.

Compared with May last year, sales were 7 per cent higher, the strongest annual increase this year.

Ten of the 14 sub-sectors recorded weaker growth than in April.

Deutsche Bank economist Darren Gibbs said the overall decline was driven by large falls in a small number of store types, particularly appliances (down 9 per cent on April), recreational goods (down 4 per cent) and motor vehicle retailing (down 1.9 per cent).

These were big ticket or discretionary items, Gibbs said, and therefore it was tempting to conclude that consumer spending was showing signs of cracking.

But retail spending was still underpinned by growth in household incomes, from both continued jobs growth and higher wages and salaries, and by the surprising resilience of the housing market, he said.

House price inflation ran at an annual rate of 14.2 per cent in the June quarter, up from 12.1 per cent in March.

ANZ economist Sean Comber said that assuming wage growth settled around 4 to 4.5 per cent, employment growth eased to 1 per cent and Government transfers (like the Working for Families measures) buoyed household incomes further, the growth in disposable incomes would point to 6 per cent annual growth in retail sales for the rest of the year and into next year.

Bank of New Zealand economist Dean Ford said the key driver of retail spending would be what happened in the labour market.

"No one spends up large when they are worried about losing their job. While there is no evidence to date pointing to the possibility of major job losses, it does seem likely that the labour market has freed up somewhat in recent months."

Tuesday's quarterly survey of business opinion from the Institute of Economic Research recorded some moderation in the hitherto extreme difficulty employers faced in finding labour.