Retail card spending rose 0.7% in March despite tightening Reserve Bank monetary policy

Statistics NZ’s latest card data shows New Zealanders are still spending freely, but economists expect that to change as households roll onto the higher mortgage rates.

Retail card spending rose 0.7% in March compared with February, when adjusted for seasonal effects, according to data released by Stats NZ on Wednesday.

“Retail card spending rose across all categories except for groceries and liquor.” 

Business performance manager Ricky Ho said spending increased in all categories except for groceries and liquor, which fell 1.2% or $32 million. 

It was a 11.3% lift in spending on non-retail industries that drove the increase. This category includes travel agencies, health and pharmaceuticals, wholesaling, and other industries.

Seasonally adjusted retail spending in the March quarter increased 1.2%, or $227 million, from the December quarter. Actual retail card spending was $19 billion in the March 2023 quarter, up 9.7% from the March 2022 quarter.

Michael Gordon, a senior economist at Westpac NZ, said spending had held up well in the early part of the year but didn’t expect it to last. 

“We still expect the economy to slow down and tip into recession by year-end. 

Mortgaged homeowners will be refixing at substantially higher interest rates in the months ahead, which is likely to put a squeeze on discretionary spending.”

This may already be the case in Kiwibank’s electronic card data released earlier Wednesday, which showed a 9% contraction in the March quarter. 

Economists Jarrod Kerr and Mary Jo Vergara said the fall was “payback” for a spending surge in the December quarter holidays. 

The Kiwibank card spending contraction occurred mostly in January and February but began to rebound in March. 

Holiday spending had been big on restaurants, cafes, and grocery stores, but there had been a sharp decline in hospitality spending first three months of 2023 

“The near 5% drop in the number of transactions made at restaurants, bars and cafés suggests fewer long lunches and more packed lunches,” the economists said. 

“In an increasingly expensive environment, the appetite to spend wanes. A slowdown in consumer spend however is by central bank design. Interest rates have been jacked up to cool demand, restore balance in the economy and ultimately, to return the inflation beast back to its cave”. 

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Kim Mundy, a senior economist at ASB Bank, said the 0.7% lift in card spending was slightly lower than expected and was partially due to Cyclone Gabrielle.

“The return of pre-COVID spending patterns continues to drive the underlying trend, with non-retail, services and hospitality spending robust over the month. Repair and restocking of damaged goods further boosted sales.”

Spending on services, durable goods, and apparel was likely to remain resilient as communities fixed up the damage in Cyclone Gabrielle.  

“However, headwinds to consumer spending are building and should take some heat out of the numbers once repair and replacement work runs its course”.

The lift in spending will likely encourage the Reserve Bank of New Zealand to lift the Official Cash Rate one more time in May. 

It will need to see “ample evidence of demand cooling and inflation easing” before it considers lowering rates again, and has explicitly said domestic spending needs to fall.