August shows no spending surge despite policy changes
Electronic card spending in August showed minimal growth, despite recent tax cuts and the first OCR reduction, ASB reported.
“Overall electronic card spending remained subdued in August,” said ASB chief economist Nick Tuffley (pictured above).
While retail spending increased for the first time in seven months, the impact of the policy changes was modest.
Household spending shifts toward essentials
Although retail and core sector spending grew slightly, other sectors, such as hospitality, saw declines.
Spending on motor vehicles fell 1.5% month-on-month, reflecting consumer caution around big-ticket items during economic uncertainty.
Conversely, spending on durables and apparel saw slight increases for the first time in months, though the overall consumer sentiment remains cautious.
Fuel and services spending rise slightly
Fuel prices dipped in August, leading to a slight 0.1% boost in fuel spending.
Services spending also saw a small 0.2% increase, while non-retail spending dropped by 0.4%.
“Consumers are allocating more funds toward essentials like groceries and household goods, while cutting back on other categories,” Tuffley said, with card spending on essentials now accounting for 41% of total spending compared to 36% pre-COVID.
Further monetary easing expected
Despite these mixed results, ASB does not anticipate a quick recovery in card spending, with significant improvement unlikely until 2025.
“We expect the retail sector to remain weak for the remainder of 2024,” Tuffley said, citing slowing wage growth, rising unemployment, and cooling net migration.
The minimal impact of the first OCR cut provides the Reserve Bank (RBNZ) with confidence to pursue further monetary easing, with additional OCR cuts likely by the end of the year.
Read the ASB economic note in full for more information.
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