Shoppers keep their wallets closed

Furniture has been hit hard. Photo / Martin Sykes

Tax cuts and a chilly start to winter have failed to fire up consumer spending.

Electronic card transaction data from Statistics New Zealand shows shoppers spent $20 million less using cards, including eftpos, than the previous month - a fall of 0.4 per cent.

The core retail sector, excluding vehicle sales and repairs, was hardest hit - down 1.2 per cent - particularly furniture, hardware and appliance sales.

BNZ economist Craig Ebert described the latest data as "disappointing".

"Just when the previous couple of months looked to be in growth mode, albeit fairly mild, this one's come a cropper and the trend's back to flat," he said.

Seasonally adjusted figures for April and May recorded small increases in the total value of card transactions at 0.8 per cent and 0.7 per cent respectively. The core retail sector had also seen a small amount of growth in the past three months.

The Statistics NZ figures show consumers have also put a freeze on credit card spending, relying instead on cash in the bank.

Credit card use - accounting for 45.2 per cent of transactions in the year to June - has shown a decline in the annualised total for the ninth consecutive month.

Ebert said "sizeable tax cuts" and the early arrival of cold winter weather would normally have been expected to drive consumer spending.

Westpac economist Doug Steel said the fall in spending had gone against expectations of a small rise.

Steel said rising unemployment and a lift in petrol prices of 5 per cent was keeping a lid on spending.

He said the effect of the swine flu outbreak, which could see people avoiding restaurants, cinemas or malls, was also a factor "on the radar".

"It's probably a bit early for that, it might happen a bit more into the third quarter," said Steel.

Ebert said the bigger story may be the aggressive early discounting by retailers.

"Which to me suggests retailers stocked up in the hope that there was going to be a big spend-up on the basis of the tax cuts and it simply hasn't happened even with the cold weather," Ebert said.

Consumers were on the right side of this, he said, but retail firms would be faced with the choice of hanging in there in the hope competitors fell by the wayside or adjusting costs for the new economic environment.

Ebert said consumer spending was unlikely to return to levels seen a year ago which had been artificially propped up by an overly buoyant economy and borrowing.

"I think it's slowly dawning on the whole economy, particularly retail, that this is a reconfiguration of the whole spending environment and there will be some people who just simply go bung," Ebert said.

Steel expects consumers to remain cautious for at least the next six months.

He said the surging net migration - estimated to be 25,000 this year - offered a glimmer of hope as it boosted housing development and the associated spending on durables.

On the plastic

Electronic card transactions for June:

* Spending on credit and debit cards fell 0.4 per cent.
* Core retail spending fell 1.2 per cent.
* Furniture, hardware and appliance sales were hardest hit.
* Credit card use continued to decline.