Cash is back, with a 70% surge in the volume of cash withdrawals compared with a year ago, according to the latest quarterly release of spending data from Kiwibank customers.
Kiwibank chief economist Jarrod Kerr, senior economist Jeremy Couchman and economist Mary Jo Vergara "the renewed demand for cash" has been an interesting development in the past year.
"Over the covid pandemic, there was an understandable aversion to handling and exchanging cash," they say.
"Today, the volume of cash withdrawals has taken a step-change higher – up 70% compared to a year ago."
They suggest that the resumption of international travel may explain the sudden jump in cash withdrawals.
"When travelling abroad, it’s handy to have cash on you."
However, the demand for cash also appears to have coincided with a slowdown in the number of online purchases.
"Over the pandemic, we witnessed a tec(h)tonic shift toward digital commerce. Though storefronts were boarded up, households continued to shop – click and collect style. But Kiwi are now redirecting their spending toward services. The number of online purchases has fallen back to 2019 levels."
The economists say 2020 "will be remembered for many things", one of which will be the "exorbitant spending" on all things housing.
"Kiwibank spending data supports the countless anecdotes of Kiwi DIYing, everything from renovating bathrooms to installing pools. And with the adoption of working from home, many sought to create a home office. There was fresh demand for office equipment.
"But now Kiwi are fully decked out, and much has changed since 2020. Consumer confidence has weakened, credit is harder to get, and the housing market is in retreat. Households are just not in the mood to splash out on big-ticket items anymore."
The economists say that as a consequence, housing-related spend continues to fall. Spending fell another 4.5% in the September quarter.
"We’re making fewer purchases on household contents & furnishings, down 3.4% and sitting below 2019 levels. Similarly, the volume of transactions on home electronics dropped 2.4%. Kiwi are also putting down the tools, with the number of trips to hardware stores virtually unchanged from the prior quarter."
The economists say that as house prices continue to fall, "the wealth effect" will continue to weaken and spending alongside it.
"Weaker appetite to spend on the house is a clear sign that demand in the economy is cooling."
The economists say that overall, Kiwibank electronic card spend rose 3.1% in the September quarter.
"Supported by historically low levels of unemployment, consumer spending appears to be holding up. Although, the rise in consumer prices is working behind the scenes.
"High inflation is helping to prop up the value of transactions. When adjusting for inflation, consumer spend rose by a lesser degree up 2.1%. And slower than the 5.2% increase last quarter. The widening gap between nominal and real spend underscores the rapid rise in consumer prices."
They say the slower rise in real spend also suggests that Kiwi are tightening their belts.
"Evidently, the growth in dollars spent is outpacing the growth in the volume of transactions. It appears that the number of times Kiwi tapped, swiped and inserted their cards is slowing. And in September, the volume of transactions was unchanged from the prior month.
"The outlook for consumer spending is weakening. With rising interest rates, high living costs and falling house prices, the appetite to spend up large is waning."
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