Spending looks soft as cash-strapped New Zealanders head into the Christmas period

In December last year, I was almost excommunicated from my family for suggesting we ‘cancel Christmas’ by forgoing presents and other costly parts of the holiday.

We’d still get together and eat a delicious meal, I insisted, but it didn’t make me popular.

The idea had been put in my head by Reserve Bank Governor, Adrian Orr, at a press conference following the release of the November 2022 Monetary Policy Statement. 

The annual inflation rate that quarter was 7.2% and the Official Cash Rate was 4.25%, yet households were still spending fairly enthusiastically. 

Governor Orr, sometimes described by his critics as being “flamboyant”, delivered one of his most iconic lines at that November press conference. 

“Think harder about your spending. Think about saving rather than consuming … just cool the jets,” he told reporters.

That phrase became the go-to line for commentators and economists trying to explain how households (and Governments) could help fight inflation. 

But, despite the public appeal, consumers kept on doing what they do best. Spending stayed fairly strong throughout the summer and it was a Merry Christmas — for those who could afford it. 

Jets cooled

This year, less can afford it. Jets have been cooled by punishingly high mortgage rates and spending seems to have fallen or at least frozen at last year's levels.

New data from Westpac-issued debit and credit cards showed nominal spending in the three months to November was up just 3% compared to the same time last year.

That’s a decline in real terms, since retail prices are up almost 4% and the population has grown by more than 2%. 

Westpac said there had been a particularly sharp slowdown in spending on clothes, furniture, and recreational items — popular Christmas presents. 

“That chimes with anecdotes we’ve heard from retailers that spending during ‘Black Friday’ and other sales events through November has been subdued, and that households have been spending more on essentials and seeking value for money,” the bank economists said.

Did you notice how many Black Friday sales there were? It seemed to me that almost every retail outlet was offering big discounts in an effort to get people in the door. 

Carolyn Young, chief executive of Retail NZ, said feedback from retailers suggested Black Friday sales ended up being down about 10% from last year. 

This was despite sellers starting discounts earlier and pushing promotions harder in an effort to kickstart summer sales. 

Young said Black Friday had attracted shoppers into stores but many had walked out again without buying anything. 

Pre-Christmas data released by Worldline NZ showed spending was tracking about 1.4% above 2022 levels, which is a decline in real terms.

Bruce Proffit, the Chief Sales Officer, said it would still be a busy few weeks for retailers despite the trend towards “softer spending growth” seen in the early figures. 

Shopping around 

After a couple of years plagued by supply shortages and high prices, surveys show consumers are becoming price sensitive again.

A September survey by Boston Consulting Group found consumers were tightening their belts and looking for value in all consumer spending categories.

Between 40% and 60% of respondents said they were spending more on utilities, housing, and groceries than six months ago — and were less keen on other spending as a result. 

Phillip Benedetti, a managing director at the consulting firm, said New Zealand consumers were increasingly choosing affordable brands and hunting around for the lowest prices. 

“I think people are genuinely more price conscious because their disposable household income has taken a massive hit,” he said. 

Westpac NZ said ongoing financial pressures and lingering economic nervousness would result in many households holding back through the Christmas shopping season. 

“That will be welcome news for the RBNZ who need to see a cooling in domestic activity to get inflation back in the band”. 

In a recent note, ASB economists estimated that average weekly costs for households will go up by $70 in 2024, adding to the $115 increase that occurred during 2023. 

“The Christmas mood is expected to remain sombre for many this year and we envisage 2024 will still be difficult for many households,” they wrote. 

Ongoing resistance to paying high prices was a “key prerequisite” to cooling domestic inflation and bringing back price stability. 

“If households decide to pop the champagne corks too soon, they might discover a nasty interest rate induced hangover will result.”

With inflation still at 5.6% and another Official Cash Rate hike on the table, we should all have a Merry (but cost-conscious) Christmas.