Analysts share insights from New Zealand's February spending
In Auckland Savings Bank’s (ASB) latest Economic Note, released this week, the state of electronic card transactions for February 2024 paints a picture of a consumer-led slowdown in New Zealand’s economy. Despite climbing prices and a growing population, total card spending was down, reflecting subdued consumer confidence and spending patterns.
The data underscores a concerning trend: household retail volumes are contracting, driven by headwinds in living costs and a cooling labour market. While the figures indicate that monetary policy is effectively curbing inflation, there’s a cautious stance from the Reserve Bank of New Zealand (RBNZ) regarding the timing of any interest rate cuts.
February’s card spending figures fell short of expectations, with declines ranging from 1.4% to 1.9% across core, retail, and total card spending. According to ASB, this decline largely reversed the January rebound, perpetuating a monthly seesaw pattern in retail spending. Analysts speculate that part of the weakness in the February figures may stem from seasonal adjustments, especially given the leap year in 2024.
Comparing year-over-year data, total retail card spending showed a 4.9% increase from February 2023, with retail and core spending up by 2.5% and 3.0%, respectively. However, against a backdrop of approximately 4% annual retail price inflation and a 3% population growth, these numbers reveal a deeper weakness in the New Zealand economy, as noted in the report, primarily driven by consumers.
Several categories experienced declines in spending, signaling the impact of escalating living costs on households:
- Despite a 6% surge in petrol prices, fuel spending decreased by 3.7%, potentially foreshadowing reduced discretionary spending in the coming months.
- Hospitality retail saw a notable 4.4% decline, despite favourable summer weather, indicating consumer belt-tightening.
- Consumables retail fell by 0.9%, suggesting that consumers are scaling back on their grocery expenditures.
- Spending on durables also exhibited weak momentum, with a 0.9% decline, further highlighting cautious consumer behavior.
- Apparel shopping experienced a 1.5% decline, possibly influenced by the seasonally pleasant weather.
Challenges facing consumers
Household living costs have surged by 7% in 2023 and a staggering 23% since the COVID-19 pandemic. Housing market activity remains subdued, despite robust net immigration, while the labour market has transitioned into an employer’s market, amplifying competition for limited job opportunities.
Analysts note the RBNZ remains steadfast in its commitment to curbing inflation and will maintain interest rate adjustments until confident that inflation will stabilize at 2%. Despite a $20 billion increase in aggregate household savings post-COVID-19, disparities in household fortunes persist, particularly affecting younger age cohorts.
Outlook and projections
Consumer spending volumes are anticipated to continue contracting on a per-capita basis, with discretionary spending likely to remain constrained as households prioritize essential purchases. Slowing household income growth and a cooling labor market further dampen consumer sentiment.
Monetary policy continues to play a pivotal role in mitigating inflationary pressures, with expectations of potential interest rate cuts commencing from November. However, the analysts note RBNZ remains cautious, opting to maintain a vigilant stance in navigating the economic landscape.
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