Retail spending with cards stalls in February as wallets snap shut (Update 1)

Total retail spending with electronic cards fell 0.3% in seasonally adjusted terms in February from January, Statistics NZ data shows. The trend of card spending shows retail sales have been easing since April last year and are now flat, having initially risen early in 2009 in line with a bounce in the housing market. (Update 1 includes ASB Economist comments about subdued spending). This suggests consumers have put their wallets away now the housing market has stopped its rebound. This data, along with other data showing a slowing of momentum in the consumer economy, may give the Reserve Bank more room to delay its first interest rate hike from the middle of 2010 until later in the year. The Reserve Bank is expected to announce its latest view on the Official Cash Rate on Thursday at 9am, although it is expected to leave it on hold for now at a record low 2.5%. The key point to watch will be whether it keeps its most recent outlook for a rise "in the middle of 2010" or whether it extends that forecast out into the "second half of 2010" or the "latter part of 2010." Here is the full release below from Statistics NZ:

Core retail, retail, and total transactions were all down slightly in February 2010. Core retail (which excludes the motor vehicle-related industries) was flat, down just 0.2 percent compared with January 2010. This decrease reflects flat or falling sales in all the core retail industries, except consumables. Core retail also decreased 0.2 percent in January 2010. Transactions in the retail industries were down 0.4 percent in February 2010. Fuel retailing declined 1.3 percent ($7 million) after being the main contributor to increases in the retail series from August 2009 to January 2010. When the non-retail industries are included, the total value of transactions was down 0.3 percent. The non-retail industries were down 1.3 percent ($14 million) in February 2010. Trends for the value of transactions in the core retail, retail, and total series have all been increasing since January 2009, although at different rates: * the core retail trend has eased gradually since April 2009 and is now flat, up just 0.1 percent in each of the last four months * the retail series has increased a total of 4.4 percent since January 2009, but the rate of increase has eased following a 0.6 percent increase in October 2009 * for the total series, the growth rate has been steady, averaging 0.4 percent per month since February 2009.

Today's outturn points to consumer spending remaining subdued, and the recovery in household spending perhaps being more gradual than we had been expecting. In particular, spending on durables remains soft, suggesting households are continuing to hold off on purchases of big-ticket items. Furthermore, other areas of discretionary spending were also weak, with another decline in spending on apparel. Partly offsetting this weakness was an increase in spending on consumables, which largely consists of food products. The release of February Food Price Index on Thurs will shed insight into whether this increase was driven by an increase in food prices - we are forecasting food prices to be generally flat over the February month. The relationship between electronic card spending and retail sales is not particularly tight. Nonetheless, looking at how electronic card transactions have trended over the past few months it appears the recovery in household spending remains very gradual.