Consumer spending remains low-key in September quarter

"Cautious", "subdued" and "modest" were the words economists reached for to describe consumer spending in the September quarter.

Statistics New Zealand went for "flat" to characterise an increase of just 0.1 per cent in total retail sales volumes in the quarter. It followed five quarters of decline including a record 2.8 per cent drop in the March quarter.

Core sales were up 0.5 per cent in volume terms but that was heavily influenced by a 6.5 per cent jump in appliance sales. In dollar terms appliance sales were up 5.1 per cent, implying some discounting.

Bank of New Zealand economist Craig Ebert estimated that excluding appliances core retail volumes fell 0.4 per cent.

While good for the distribution sector, the binge on appliances was hardly supportive for domestic production more generally, he said.

Overall, inventories fell, relative to a year ago, for the third consecutive quarter.

Westpac economist Donna Purdue said the ratio of stocks to sales was now at record lows and with sales nowrising, along with expectations of more growth ahead, a strong inventory cycle was likely.

"This will promote activity in the manufacturing and distribution sectors over coming quarters and is part of the economic recovery we have forecast for the second half of 2009."

But compared with the steep rise in surveyed consumer confidence, the September quarter retail sales data and weak electronic card transaction numbers for October suggest consumers have yet to put their money where their mouths are.

"Rather, as indicated by Reserve Bank's household lending data, at this stage households are continuing to pay down debt at a faster than usual rate," Deutsche bank chief economist Darren Gibbs said.

Auckland is outperforming the rest of the country in retail spending with sales up 2.2 per cent in the quarter while they were flat or declined in other regions.

Auckland had come under pressure earlier in the downturn than other regions, ASB chief economist Nick Tuffley said.

Purdue expects consumer spending to build on its recent modest gains.

"Consumer confidence has soared, labour market indicators are more upbeat, Fonterra has revised up its 2009/10 dairy payout and the higher dollar is increasing consumers' purchasing power."