Concerns over debt force shoppers to go easy on the plastic

Photo / Greg Bowker

Consumers remained cautious last month, electronic card transactions data indicate.

Spending charged to credit or debit cards, which represents about 61 per cent of retail spending, shrank 0.4 per cent in February compared with January on a seasonally adjusted basis, Statistics New Zealand said.

Excluding service stations and other parts of the automotive sector, card transactions were down 0.2 per cent by value, following a similar decline in January, to be 2.6 per cent down on February last year.

It reinforces the picture of consumers wary of debt in a weak labour market and a faltering housing market.

Reserve Bank data for January show the total stock of consumer debt at $12.28 billion, down 4.1 per cent on January last year and down 3 per cent on January 2008.

"Today's out-turn points to consumer spending remaining subdued, and the recovery in household spending perhaps being more gradual than we had been expecting," ASB economist Christina Leung said.

"In particular, spending on durables remains soft [down 1.6 per cent on January], suggesting households are continuing to hold off on purchases of big-ticket items."

Other areas of discretionary spending were also weak, with a 0.8 per cent decline in spending on apparel following a 2.1 per cent fall in January. Partly offsetting this weakness was a 0.8 per cent increase in spending on consumables, which largely consists of food products.

Deutsche Bank chief economist Darren Gibbs expects consumer spending to strengthen as the year progresses and as the economic recovery is reflected in a stronger labour market. Some spending was also likely to be advanced ahead of a possible rise in GST later this year, he said.

"The main risk to this picture remains a renewed loss of consumer confidence that could be associated with current low levels of housing market activity and flat or declining house prices."

Goldman Sachs JBWere economist Philip Borkin had expected further recovery in consumer spending over the first half of this year, supported by net immigration and pent-up demand for durable goods.

"However, the underlying trend appears more subdued and one where consumers are reluctant to open their wallets. From the Reserve Bank's point of view, it reinforces that despite policy support, there is limited evidence of a return to our borrow-and-spend ways."