Retail card spending had quite a chunky drop last month on a seasonally-adjusted basis, which is perhaps a sign that the Reserve Bank's ramping up of interest rates is starting to have a dampening effect on consumers.
Westpac senior economist Satish Ranchhod said retail spending was softer than expected in December, "adding to signs that the domestic economy is turning down".
"It seems that New Zealand households are finally heeding the Reserve Bank Governor’s advice, with the latest retail update pointing to restraint in spending over the Christmas holiday period."
ASB senior economist Mark Smith said consumer spending "looks to have ended 2022 on a weak note and RBNZ warnings look to have been heeded".
"Moreover, our view remains that retail spending will struggle over 2023 given headwinds facing the sector."
Stats NZ business performance manager Ricky Ho said spending fell $166 million (2.5%) in December 2022 compared with November 2022, when adjusted for seasonal effects.
"The fall in retail card spending is large for a December month, and this month’s drop is the first in nine months," Ho said.
While December 2022 retail card spending rose in actual terms, the increase was smaller than those typically seen in past December months, he said.
Seasonal adjustment is the process of estimating and removing seasonal effects to allow comparison of data for adjacent months.
Stats NZ said spending fell across five of the six retail industries, with the largest fall being from sales of durables – down $95 million (5.7%). Durables includes items such as furniture, hardware, and appliances.
Spending on fuel and apparel (clothes and shoes) was down, $26 million (4.3%) and $17 million (4.7%) respectively.
The only spending category that saw an increase was groceries and liquor (consumables), up $39 million (1.5%).
Westpac's Ranchhod said the declines in spending were "particularly notable".
"For most of 2022, households were continuing to dial up their spending on discretionary items despite large price increases. Spending was also boosted by the return of international tourists to our shores.
"However, as we’ve been highlighting for some time, households’ finances are coming under increasing pressure on several big fronts. Continued rapid price increases are eroding their spending power. Falls in house prices have meant that many families have seen the value of their assets decline. And, perhaps most importantly, mortgage interest rates have increased sharply over the past year," he said.
ASB's Smith said weaker asset prices have hit household balance sheets and surging living costs are sapping household cashflows and eroding post-lockdown savings.
"The RBNZ has been explicit in noting that domestic spending will need to slow to get inflation down. If not, even higher interest rates will ensue. This warning looks to be hitting home, with weak household spending volumes a key contributor to the mild recession we expect for NZ in mid-2023 (if not earlier).
"Weakness in household spending could see the RBNZ potentially scale back the 125bp of [Official Cash Rate] hikes it has signalled for early 2023, but the inflation outlook should take priority and the RBNZ is unlikely to wobble unless it is 110% confident inflation will settle in the 1-3% inflation target range.
"OCR cuts are unlikely until the second half of 2024, but weakness in household spending activity and a cooling outlook for retail price inflation could see the timeframe for OCR cuts bought forward," Smith said.
The total value of electronic card spending, including the two non-retail categories (services and non-retail) fell $104 million (1.2%) in December 2022.
In actual terms, retail card spending was $8.1 billion, up 4.8% ($375 million) from December 2021.
“The largest contribution to retail card spending came from groceries and liquor which reached $3.1 billion in December 2022,” Ho said.
In terms of the December quarter, seasonally adjusted retail spending increased by $110 million (0.6%), following a 1.7% rise in the September 2022 quarter.
“Spending on groceries and liquor was the largest contributor to the rise in retail card spending in the December quarter,” Ho said.
Actual retail card spending was $22 billion in the December quarter, up 9.0% from the December 2021 quarter. Spending on hospitality had the largest increase, up $1.0 billion (37%) compared with the December 2021 quarter.
“As Covid restrictions eased over the last year, people were able to get out and about to cafes and bars, and to resume travelling,” Ho said.
Values are only available at the national level and are not adjusted for price changes.
Electronic card transaction data covers the use of credit or debit cards in shops or online and includes both the retail and services industries.
57 Comments
And those consumers typically are not only spending less they are too getting less for what money they can afford to spend.It’s a double negative and one wonders what the hell the powers that be thought would be achieved exactly by the borrow to spend to save the economy strategy that was promoted in the throes of the pandemic.
The irony of course is this getting less for what money we can afford to spend has been going on for at least two decades in the form of what we pay for our housing, and that has been trumpeted as a good thing.
House prices are still approx. 30% higher than their true free market cost due to all the non-value added costs that bad Govt. policy has caused.
This means for anyone with a mortgage, that mortgage is anywhere from 50% to 100% more than it needs to be, which is a debt that is locked in regardless of whether the price goes up, or down, and then on top is the extra interest you are paying regardless. And of course, the cost of ownership affects the cost of renting.
Would nurses etc. be needing to go on strike for higher wages if their housing costs weren't so high?
New Zealanders would have so much more discretionary income for savings, health, education etc. if housing policy had not been corrupted by all political parties.
And the maths on how this had to end, as it is, is about as formulaic as you can get, except for those blinded by their own self-interest.
For some fun I asked chatopenai to write a letter about this -
My dearest Adrian,
I hope this letter finds you well. I have been thinking about you a lot lately, especially when I went shopping for groceries and liquor. I couldn't help but notice the prices have been on the rise and it made me think of you. I know it's not fair to blame you for the Reserve Bank's decision to increase interest rates, but it's hard not to. I can't help but think that if you were here with me, we could have saved more money together.
I miss you and I can't wait for the day when we can shop together again without the burden of high prices.
Forever yours, Jacinta
P.S. I hope you're ready to buy me a lot of groceries and liquor as a way of apology.
Behind the paywall but excellent article on the specifics of imminent global threats to the economy. Japanese bonds described as a "likely Black Swan Event" with a good explanation for those of us not too knowledgable about bonds.
https://www.nzherald.co.nz/business/interest-rate-rises-risk-a-financia…
Evans-Pritchard. Would be a good read. Some of the commentators here have been alert to what's going on in Japan and the huge pivotal shift it could represent for capital flows. It should not be a Black Swan event if people are already discussing it. But I do know that the eyes of people glaze over when I discuss it offline.
LOTs of venture cap and PE have borrowed heavily and cheaply in Japan to fund international investment, some will unwind, and not gracefully.
Makes sense. The Japanese themselves are not big on the VC game. I'm loosely connected to some Japanese starts ups in SEA through consulting work; for ex, one food service supply chain solution. Initially funded by a Japanese bank but now by one of the Thai corporate behemoths.
Even in cases like Suntory owning Frucor (totally legit and strategic), we have seen a lot of vertical integration fuelled by Japanese companies being able to borrow real cheap. IMHO this is as big for JPY as QE was for the USD.
Yes yes. BTW, done work for Suntory Pepsico JV. But I do wonder what kind of cash pile a company like Suntory is sitting on. Japanese companies are a whole different animal and their reliance on funding is completely different to what we might expect in the West.
Swerve the paywall, seems to have been removed from the Chrome store but download from here still works:
https://chrome-stats.com/d/cbjdgaghcellmhofepnabpilajljibma/download
I seem to be living through an inordinate number of black swans and perfect storm events in my lifetime. They have long since overtaken what swans and imperfect storms. I hardly remember a time before the music was about to stop.
Economics has become a frenzied mania of stupidity.
Is it, or do we just have an insane amount of exposure to everything going on, including foreshadowing.
If we look at this website as an example, every day we are fed a handful of stories for months on end about a recession or housing crash that will potentially last a shorter time than the hype leading up to it.
Everything's a disaster waiting to happen, that rarely happens.
Luckily Black Swans are endemic to NZ (& Australia), so we should be ok.
Not to be confused with the Covid Pandemic which is from bats, but if we get a Black Swan pandemic aka 'bird flu' then both the economy and our health could be in trouble.
I'm starting to sound like an economist.
...spending fell $166 million (2.5%) in December 2022 compared with November 2022, when adjusted for seasonal effects.
Finally consumers are starting to trim spending back. I was starting to wonder if there was something we weren't understanding because it took so long. Anyway hopefully this allows prices to fall rapidly, along with inflation, and the OCR can stabilise. Let's see how retailers respond.
An interesting metric to watch will be our services trade balance with Aussie with massive profits getting shipped out of NZ to the likes of the big-4 banks, IAG, QBE, etc.
What's reassuring is that some of those billions will eventually make their way back into our economy when high-paid workers and wealthy shareholders at those companies spend their holidays in Queenstown.
the RBNZ is unlikely to wobble unless it is 110% confident inflation will settle in the 1-3% inflation target range
That is not going to happen, inflation will not drop to 1-3% but the RBNZ will be forced to lower interest rates anyway as NZ craters into a deeper recession. = Stagflation!
Todays Stuff Headline "Some household budgets will be crushed by rising interest rates this year, Westpac says"
New Zealand's Effective mortgage rate is currently 3.7% and will rise to 5.3% by the end of the year.
One third of NZ's 1.94 million households are servicing a mortgage on the house they live in. New Zealand has 337 Billion of total mortgage debt. So that is a rough average of 520K each per household. 1.6% additional mortgage interest will be 5.4 billion per year or $8300 per household average.
What happens if you take an average of $160 per week of after tax income away from over half a million households?
We are about to find out.
NewShrub have an item by Shamubeel Eaqub , who claims that Zealandia is already in a recession .... its just that the stats don't reflect it yet ...
... the lowest confidence rating ever by businesses since records began point a graphic picture as to how the government & the RB are performing ... unless , of course , it's the previous govt's fault ... ah ha haaaaaaaaaaa ....
Westie
The lowest fixed term rate is 6 months @6.29 (Interest .co) so thats a 2.6 % increase which on a $400k mortgage is another $10,400 Pa in interest - discretionery spending will decrease substantially and longer rates are closing in on 7%, prediction severe pain ahead.
It's been a while since I worked in retail pricing and promotions (for a household name retailer). Even back then most sales were really more a marketing message designed to encourage more purchases through a perception of artificial scarcity than any great deal. Most of our best deals were genuine clearances at various times of the year or the odd 'door buster' in limited quantities, but otherwise you could usually get the same kind of discount any time of the year by asking, or at any weekend sale, weekly special etc.
It's only got worse since then. "Headline" sales e.g. Black Friday and Boxing Day have definitely become a whole lot less impressive, and just trade off the name in effect. For 2022 Black Friday I saw a couple of genuinely good deals (e.g. a $800 graphics card for about $350, which sold out very fast) but everything else was the usual approach of 'slap a sale sticker on it and hope someone is dumb enough to fall for it'.
Retailer buyers/promotions teams will be under even more pressure in this regard to make a bigger deal out of worse discounts because of inflationary pressures on actually acquiring the stock. I suspect some retailers have cynically believed they could avoid any meaningful discounting as an inflationary environment means everyone is willing to pay more; they may come to rue that decision.
Stuff A O tea A ROWER!... IF IM NOT WEALTHY ... IM NOT HEALTHY!
What I mean is if I don't look after Numero uno then I become a liability to everybody and the economy!
I'm over giving back! FFS!... I HAVE WORKED MY LIFE paying about 50% of my income to councils/ government( income tax)/ government departments/ and GST. The rest has gone to greedy retailers and banks to profit off.... So stuff it! ... It's "ME" time!
I am a greedy capitalist white male pig.... Buy I've paid for the priverlage!... And I don't give a rats rear end what the people who made bad/ dumb. Decisions think!...
....Unlike the greedy benefit/ system bludging takers who seen to think they have all the rights and deem us " winners" as the aforementioned. But add the words racist, colonist's polluters to stir the pot
I did a bit of a life audit over what might have passed as summer at a squint, and concluded that I don't want or need to spend much this year. Have enough clothes, house, stuff in house, car, kid set for school and hobbies, got bikes and sports gear, decent running shoes, devices all modern enough. We're very fortunate.
Going to try and spend the bare minimum this year. Probably some diet changes. Alcohol is off the menu for a while and I've always been keen to go more vegetarian anyway, so now is the time to learn new things.
Another "cluster F@$k" from Orr...
he calls out a recession 💥 boom💥
peeps stop spending👎
retailers stop selling 👎
retailers close down of layoff staff👎
unemployment climbs👎
Orr gets what he didn't want a RECESSION!.. BRILLIANT!
💥BUST💥..
.. THE GUYS A "DEAD SET" muppett
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.