Statistics New Zealand says the $640 mln drop in credit and debit card spending last month was the first drop in spending since the August 2021 lockdown

There was a big drop in consumer spending around the country last month, with the spread of Omicron being blamed.

The latest news is bad, particularly for the likes of the hospitality sector, which has been struggling in any case through things such as the prior lockdowns for Covid.

Statistics New Zealand said seasonally adjusted total credit and debit card spending in February 2022 decreased by $640 million (7.6%) compared with January 2022. This figure includes services and non-retail spending.

In terms of pure retail spending, this was down 7.8%. The 'core' retail spending, which excludes fuel, was down 8%.

"This drop across the board was the first of its kind since August 2021, when the country was in lockdown at alert level 4," Stats NZ's business performance manager Ricky Ho said.

ASB senior economist Mark Smith said "rampant retail price inflation" suggests that actual retail volumes fell by more than for retail values.

"Further volatility lies ahead, with retail spending likely to fall further in March, with a modest recovery thereafter. The resilience of the household sector will be tested by rising living costs, declining real wages and falling house prices. The retail outlook over 2022 in general looks to be challenging."

Westpac senior economist Satish Ranchhod said the drop in retail spending "was a much sharper fall than we had expected".

He said despite "more permissive health restrictions" for Omicron compared with earlier Covid outbreaks, "many households are nervous about going out".

"That’s been a major drag on spending in the hospitality sector which has been struggling to regain its footing after last year’s Delta outbreak. We estimate that spending in the sector is still running around 20% below the levels we saw prior to the Delta outbreak last year."

Ranchhod said feedback from retailers across the country has highlighted big drops in foot traffic, especially in Auckland and Wellington.

Stats NZ's Ricky Ho said the total amount spent on consumables in February, which includes groceries and liquor, decreased by $141 million (5.7%) from the previous month.

Apart from consumables, the downturn was particularly driven by card spending on apparel, which includes clothing, shoes, jewellery, and watches, down $50 million (14.4%), and on fuel, down $35 million (5.9%).

"The decrease in fuel spending coincided with more people working from home due to the spread of Omicron and isolation rules being in place. In addition, rising fuel prices may have influenced people’s decisions on whether or not to use their cars," Ho said.

In actual terms, while Kiwis spent $5.4 billion in retail using electronic cards, up $58 million (1.1%) from February 2021, spending on hospitality, which includes accommodation and restaurants, saw a drop of $97 million (10%).

"With the spread of Omicron in the community, people may have avoided travelling or eating out," Ho said.

Values are only available at the national level and are not adjusted for price changes.

Westpac's Ranchhod said Omicron related nervousness is likely to remain a drag on spending for some time yet. In addition, the related sharp rise in absenteeism has disrupted distribution networks across the nation.

Spending levels will also be constrained by strong increases in the prices of necessities like food and fuel, with the latter rising very sharply in the wake of the Russia-Ukraine conflict.

"Those price increases are syphoning a large amount out of households’ wallets, and that will squeeze discretionary spending in other areas."

While strong price pressures are likely to be a feature of the economic landscape "for a protracted period", the picture with regards to Omicron is likely to change over time, he said.

"Australia’s Omicron outbreak in January is a useful comparison on this front. In January Australia saw a large drop in spending and rise in absenteeism as case numbers rose. However, Australian case numbers had clearly peaked by the end of that month, and although daily case numbers remain relatively high, consumer spending has seen a strong rebound."

ASB's Smith said the consumer "played a pivotal role" in supporting the economy over 2021.

"It is our expectation the retail outlook in general will be challenging over 2022 as headwinds facing the retail sector intensify. These include higher retail prices ($3+ per litre petrol prices and annual CPI inflation close to 7% in early 2022), sharply rising debt servicing costs for households, still-present retail stock shortages, tight credit conditions, a cooling housing market outlook and ongoing Covid-19 caution.

"Sharp falls in February consumer sentiment to a record low - with consumers increasingly pessimistic over their own prospects and economy-wide prospects – do not point to a strong rebound as consumers hunker down," he said.

"Despite stagflation-like conditions facing the household sector, the RBNZ [Reserve Bank] is expected to move forward with OCR [Official Cash Rate] hikes. We expect a sequence of 25bp hikes with the OCR to peak at 2.75% in early 2023 with risks to the upside.

"How long the OCR can stay above circa 2% neutral levels is another matter entirely."