Economist discusses the factors impacting the retail sector outlook
Card spending has rebounded in November, with increases across various categories, but challenges persist as spending continues to decline on a per capita basis, according to ASB’s Kim Mundy (pictured above).
“Stats NZ data just released showed net migration hit yet another record high in the year to October,” the ASB senior economist said. “At a household level, it’s clear that households are exercising constraint amid high debt servicing costs and an elevated cost of living.
“Mortgage relief appears to be some way off and that will continue to hamstring retail sector spending. Further weakening in the labour market is also likely to provide some offset to the boost from population growth.
“All up, we retain our cautious outlook for retail spending as we head into the holiday period and 2024.”
Mixed trends in card spending
Total retail card spending experienced a 1.6% seasonally adjusted month-on-month increase in November, yet on an annual basis, it’s only marginally higher, raising concerns despite high inflation and population growth. Notably, fuel spending increased, suggesting consumers capitalised on lower fuel prices.
Core card spending, reflecting the overall trend, rose by 2.2% seasonally adjusted month-on-month. While apparel spending led with a 5.2% surge, durables and apparel spending, at 1.3% and 4.7%, respectively, remained lower than November 2022 figures.
Consumables spending, meanwhile, has demonstrated resilience in recent months, benefiting from the positive impact of population growth. On an annual basis, consumables have surged by 5.4%, surpassing November 2022 figures.
Stats NZ continues to refrain from publishing seasonally adjusted hospitality data. However, on an unadjusted basis, accommodation spending saw a notable 3% month-on-month increase.
“We still don’t expect the recent lifts in house prices will provide much of a boost to durables spending while housing turnover remains subdued,” Mundy said.
Non-retail spending, inclusive of medical and other healthcare, travel and tour arrangement, and postal and courier delivery, remained resilient, posting a 0.8% seasonally adjusted month-on-month rise. ASB suggests that strong population growth likely contributes to this sector’s stability.
Black Friday boost
Mundy said that the November surge in card spending may have a Black Friday boost, but the true impact remains uncertain.
“The degree to which households brought forward Christmas spending to make the most of deals, or are trying to spread the spending load, could have added to the lift in spending,” she said. “However, we caution that there could be a degree of noise within the November seasonal adjustment because Black Friday sales are a relatively new phenomenon.”
ASB’s outlook: OCR and inflation risks
The macroeconomic environment, largely unchanged since October, indicated that households continued to exercise spending restraint amid higher debt-servicing costs and overall cost-of-living pressures. Despite ongoing subdued demand, the positive impact of population growth is evident.
Overall, Mundy said the surge in card spending aligns with ASB’s view that the OCR has peaked, and potential future moves may lean towards a lower rate.
“However, lingering upside risks to the inflation outlook and the RBNZ’s determination to make sure inflation falls back to around the midpoint of the inflation target all reinforce that said cuts are a long way off,” Mundy said.
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