The retail spending slump is getting worse, with sales figures falling for the fourth consecutive month - and the latest fall is the biggest of the four.
Statistics NZ says that on a seasonally adjusted basis, total retail spending slumped 1.1% in May 2024 compared with April, while 'core' retail spending - which excludes fuel and vehicles - fell 0.8% on a seasonally-adjusted basis last month.
This worsening slump in spending comes following a period of sharp price rises and now amid the high interest rates that have been engineered by the Reserve Bank (RBNZ) as it strives to get inflation back into its 1% to 3% target range. The higher cost of living and the high interest rates are clearly taking their toll, and with the RBNZ currently forecasting that it won't be reducing the Official Cash Rate (at 5.5%) till the second half of 2025, there's no immediate respite in sight.
In the past fourth months the total retail spending figure movements have fallen by, in order, 0.8%, 0.7%, 0.4% and now 1.1%. So, the latest month is the worst in that sequence and is the worst since the 1.3% fall in December of last year. Apart from a surprise 1.0% rise in January of this year, it's been downhill all the way for retail sales in 2024.
Stats NZ said specific movements by retail spending category in May 2024 (seasonally-adjusted) included:
- hospitality, down 2.0%
- fuel, down 2.8%
- durables, down 1.0%
- motor vehicles (excluding fuel), down 4.8%
- apparel, down 1.2%
- consumables, up +0.1%
Comparisons with a year ago are pretty unflattering as well.
The May total retail figures were down some 1.6% on those for May 2023. The figures aren't inflation adjusted so, all things being equal should rise from year to year. Annual inflation in the year to March was running at 4.0%.
Westpac senior economist Michael Gordon said retail spending levels have fallen over the last year despite some strong population growth, "which points to an even sharper fall in per-capita spending".
"In large part that’s been a result of continued increases in living costs that are squeezing households’ spending power. Those pressures include increases in the costs of necessities like rent and utilities which are draining cash from households’ wallets, even though we’re now seeing more modest increases in retail prices," Gordon said.
"We expect household spending will remain soft over the coming months. Households’ budgets remain under pressure from continued high interest rates and still-high inflation. At the same time, the labour market is softening. Those conditions mean that spending appetites are likely to remain weak for some time yet. On the more positive side, income tax cuts may give spending a temporary boost through the back half of the year."
ASB senior economist Kim Mundy said New Zealand’s retail environment "is very weak".
"Households are battling rising cost of living pressures (including higher mortgage interest rates) and have pulled back spending as a result.
"More recently, the weakening in the labour market and rising unemployment rate [to 4.3%] has added to consumer caution. Indeed, consumer confidence has retreated again in recent months," Mundy said.
"With headwinds facing consumers unlikely to abate any time soon, we expect to see more of the same over the coming months. Tax changes may not provide too much relief if cautious consumers opt to save a chunk. Weak consumer demand is a prerequisite to RBNZ rate cuts, but at this stage, it’s proving slow to translate into sustained lower inflation. OCR cuts will remain a distant prospect until inflation cools further."
Stats NZ said the non-retail (excluding services) category decreased by $16 million (0.7%) from April 2024. This category includes medical and other health care, travel and tour arrangement, postal and courier delivery, and other non-retail industries.
The services category was down $22 million (5.8%). This category includes repair and maintenance, and personal care, funeral, and other personal services.
The total value of electronic card spending, including the two non-retail categories (services and other non-retail), decreased from April 2024, down $81 million (0.9%).
In actual terms, cardholders made 164 million transactions across all industries in May 2024, with an average value of $55 per transaction. The total amount spent using electronic cards was $9.0 billion.
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