BNZ Market Review: Retail Spending Eases Slightly
Retail Spending Eases Slightly In May
Seasonally adjusted ex-auto retail spending is estimated to have eased 0.3% in May after growing by a strong 1.2% in April.
In unadjusted terms sales were up 5.4% from a year ago.
High performing regions recently have been Northland, Waikato, Nelson, and West Coast while spending restraint is evident in Auckland, Gisborne, Wellington, Canterbury, Otago and Southland.
In unadjusted terms we estimate nominal ex-auto retail spending was flat in May after falling 2.5% in April. Compared with a year earlier spending was up around 5.4% which is a slowdown from growth of 7.8% in April. However it is important to note that in May this year there were five Sundays as opposed to just four in the previous four years and this has imparted a downward bias to the unadjusted annual change and the monthly change as well. Adjusting for this we estimate a seasonally adjusted change in sales in May of –0.3% - or also essentially flat.
Smoothed over the past three months we find retail spending running about 7% ahead of a year earlier – a rate of growth reflective of a still strong domestic economy buoyed by a firm labour market, strong incomes growth, and higher housing wealth and construction. Given rising interest rates, easing net inward migration, and growing talk of falling house prices we expect the underlying rate of retail spending growth to ease toward 5% over the coming year.
CONSUMER SPENDING PROSPECTS
Anecdotal evidence from our contact with the retailing sector suggests conditions remain robust around New Zealand. In particular in the regions there is hope that with the currency declining from 70 cents and commodity prices soaring the feared pullback in farmer retail spending will not eventuate. (We will discuss farmer spending growth in next week’s BNZ.MarketView Town & Country report.) Interest rate rises to date are not reported as being any significant source of concern – though these readings were taken before Thursday’s review of the official cash rate by the Reserve Bank.
Our expectation is that in spite of the resurgence in rural incomes retail activity growth will ease off over the coming year though not by a significant degree. That is, whereas the nominal value of ex-auto retail spending rose by 6% in the year to March, 6.9% the year before that, and 6.9% also in the year to March 2002, over the coming year growth nearer 5% is likely. All storetypes should experience growth, however from late this year and early 2005 there is a risk of weakness in sales of consumer durable goods like furniture and appliances as the housing boom subsides and financing costs move higher.
The main factors which we expect to slow retailing spending growth over the coming year include the following.
Rising interest rates
Slowing economic growth
Easing house prices
Easing housing construction over 2005
Slowing jobs growth (minor)
High fuel costs including rising electricity prices
Cheap airfares diverting spending overseas though this effect will fade
Falling net inward migration
There are some factors which will add to growth in consumer spending, including the following.
Firm foreign visitor growth
Accelerating wages growth
Easing fiscal policy
SPENDING BY REGION
The graph below shows the unadjusted change in retail spending in the three months to May from the previous three month period ending in February. The results are negative because of the seasonal impact of the Christmas boom followed by the early year consumer retreat. The high performers have been Northland, Waikato, Nelson, and West Coast while spending restraint is evident in Auckland, Gisborne, Wellington, Canterbury, Otago and Southland.
An alternative comparison is of the latest three months compared with the same three months a year ago. This gives the following graph showing weak annual growth for Auckland and Southland but high strength in Waikato, Bay of Plenty and Taranaki.
Spending Catch-Up Underway
In the three months to May we estimate card spending in Northland was down by 4% from the February quarter. This decline was less than the 7% NZ-wide decline so spending growth has been relatively firm in the region recently. Compared with a year ago spending for the three months was up 6% versus 6.8% nationwide. Given an improving outlook for farm incomes and the recent spending strength the period of spending under-performance shown in the graph below may not prove long-lasting.
Mild Weakness In Spending Growth Continuing
Card spending in the Auckland region has been weak relative to the country as a whole since late last year. In the three months to May spending was down by 7.7% from the February quarter which exceeded the NZ seasonal decline of 7%. Compared with a year ago spending growth of 3.3% was well below NZ growth of 6.8%. This relative weakness may reflect the fact that the fastest income gains in recent times in New Zealand have occurred in the regions. With the outlook for farm incomes improving from a few months ago this relative under-performance may continue.
Above Average Spending Growth Creeps Back Again
In the three months to May card spending in the Waikato region was down by 6.3% from the February quarter which was a slightly better result than the 7% decline recorded nationwide. Over the year to May spending growth in the region was 8% compared with 6.9% for all New Zealand so consumers have been opening their wallets more willingly than average. Given improving prospects for the dairy payout we suspect this slightly better than average performance will continue.
BAY OF PLENTY
Period Of Above Average Growth Easing Away
In the three months to May card spending in the Bay of Plenty region was down by 7.2% from the February quarter which was about in line with the NZ-wide pullback of 7%. But in the year to May card spending growth for the region of 8.4% was the strongest for all regions and easily above NZ growth of 6.9%. The first graph below shows that in comparison with the period from at least early 2003 to late 2003 there has been no clear tendency for spending growth to be above or below the NZ rate. So there is a settling down in growth it appears after a strong year.
Very Strong Growth Easing Off Recently
All economic data for the Gisborne region need to be treated carefully and smoothed over many months where possible given the small numbers being dealt with. Taking that caveat into account we note the following. In the three months to May card spending was down by 7.7% from the three months to February which was a greater fall than the NZ-wide decline of 7.0%. In the year to May spending growth of 7.2% about matched NZ growth of 6.9% though the May quarter versus a year ago rise of 5% was well below the NZ gain of 6.8%. The results bear some similarity with those for the Bay of Plenty.
Stellar Annual Growth Pulling Back Toward Average Now
In the three months to May card spending in the Hawkes Bay region was down by 7.2% from the February quarter which about matched the NZ decline of 7.0%. The annual average growth for the year to May of 7% also essentially matched NZ growth of 6.9%. But the 5% growth in spending for the quarter from a year ago was – like Gisborne – up less than NZ-wide growth at 5% versus 6.8%. Spending growth has been relatively weak recently but only slightly so and the three month annual rate of comparison must be treated with caution as a year ago things in the Hawkes Bay region were quite robust.
Spending Recovery Underway
In the three months to May card spending in the Taranaki region was down by 6.5% from the three months to February which was a lesser decline than the 7.0% nationwide fall. This slight out-performance should soon start showing through in a lift in the annual average rate of growth to near and maybe above the NZ rate. In the year to May annual growth in Taranaki card spending of 5.6% was below NZ-wide growth of a much healthier 6.9%.
Slight Post-Flood Spending Catch-Up
In the three months to May card spending in the Manawatu-Wanganui region was down by 6.6% from the three months to February. This was a slightly smaller decline than the 7.0% nationwide fall and when compared with a year ago growth of 6.3% was close to NZ growth of 6.8%.
Spending Catch-up Fairly Mild And Short-Lived
In the three months to May card spending in the Wellington region declined by 7.3% from the three months to February. This was only slightly greater than the 7% nationwide seasonal spending decline but means that Wellington’s period of spending growth under-performance is yet to switch around to out-performance. In the year to May card spending growth in the region of 5.8% was less than NZ-wide growth of 6.9% and for the three months to May spending was up just 5.4% from a year ago versus 6.8% nationwide.
Earlier Spending Surge Easing Off Calmly Now
The pullback evident in the Nelson housing market is being matched by relative under-performance in retail spending. Card spending fell by 6.4% in the three months to May which was less than the NZ seasonal fall of 7%. But the small out-performance implied by this comparison reflects slightly better than average results in March and April whereas in May the spending change in the Nelson region for the month of –1.9% was much worse than the NZ change of 0%. A pullback from stellar growth is underway. In the year to May card spending growth in the region of 6.8% essentially matched NZ growth of 6.9%, but growth in the May quarter from a year ago of 5.6% was less than NZ growth of 6.8%.
Relative Weakness In Spending Over The Past year
As we have noted for Gisborne, data for the West Coast need to be treated with caution given the small population size. With that caveat in mind we note the following. In the three months to May card spending on the Coast was down by just 4.3% from the three months to February. This was the best result for all regions when compared with the NZ-wide seasonal spending decline of 7.0%. But it has not been sufficient to cause an annual out-performance with growth for the year to May of 5.4% coming in below NZ growth of 6.9%. And even in the three month period growth from a year earlier of 5.2% was below NZ growth of 6.8%. Looking through the high data volatility we see some mild weakness but treat the data with caution.
Average Spending Growth Occurring With A Downward Bias
In the three months to May card spending in the Canterbury region fell by 7.1% from the three months to February. This was only slightly greater than the nationwide seasonal spending pullback of 7.0%. In the year to May Canterbury card spending growth of 6.8% about matched NZ growth at 6.9%. But reflecting a strong patch in the region a year ago spending for the three months to May was up just 5.1% from the three months to May 2003 versus 6.8% growth nationwide. The data suggest some mild spending growth under-performance.
Spending Growth Edging Back From Strong Levels – But Still Firm
In the three months to May card spending in the Otago region was down by 7.5% from the three months to February. This decline exceeded the NZ pullback of 7% and is broadly consistent with a story of spending growth easing off after a rural-driven boom in the previous couple of years. However, given the recent improvement in farm income prospects we do not expect the under-performance to become all that large and note that in the year to May card spending growth in the region of 7.7% exceeded NZ-wide growth of 6.9%.
Spending Splurge Ends
Finally, in Southland in the three months to May card spending was off by 7.7% from the three months to February which was a greater decline than the NZ-wide pullback of 7.0%. Spending growth has been tracking below the national average most of the time in the region since the middle of last year and this is unsurprising considering the pullback in dairy conversions and farm income prospects. The more recent improvement in expectations for farm incomes should see the degree of Southland card spending under-performance plateau soon and some catch-up in growth toward the national average rate is likely.
In the following table we have chosen to rank regions by growth in the three months to May over the three months to February as this gives the best general feel for relative performance recently.
Our raw debit and credit card spend data are adjusted in two ways to give meaningful results of use to those interested in relative regional economic performance. First we remove the effect of changing numbers of BNZ card holders in each region. Second we set the annual rate of change in total spending from the regional card database equal to annual retail spending growth estimated from the regression process in the first section of this report.
CARD SPENDING BY STORETYPE
This section is directed exclusively to retailers who can separate out their receipts from cards versus cash, credit and cheques. We present raw changes in debit and credit card spend by storetype and the month’s data presented are for calendar months.
The way retailers can use the data we present below is as follows.
Large retailers with big market shares can focus on the monthly change columns showing first the change in card spending from a month earlier then the change from a year ago. This will give insight into market share changes and the effectiveness of campaigns which may have been run over the calendar month period.
Small retailers need to make allowance for the sometimes large fluctuations in their market share by looking at smoothed data. Small retailers should compare the change in their card sales in the past three months with our own measure to gauge relative performance. They can also compare the change in their card sales versus a year earlier with our own measure to estimate annual change in market share.
We are presenting data on a calendar month and nationwide basis. Our database however is daily and can be broken down to any desired physical grouping. Information on customised market share and customer demographic analysis is available to BNZ business customers on a contractual basis. Please contact your BNZ business manager for further information.
As a guide toward data accuracy we include the following graph showing monthly changes in card spending and the Statistics NZ estimate for the storetype category Fresh Fruit & Vegetable Stores.
A background paper on the processes used in compiling the BNZ.MarketView Consumer Spending Series is available in pdf form from email@example.com, 04 474-6744, or on-line at www.bnz.marketview.co.nz
About BNZ.MarketView: Analysis in this commentary is based on data from BNZ.MarketView, a product that is a collaboration between Bank of New Zealand and MarketView Ltd. BNZ.MarketView analyses approximately seven million transactions that are made by Bank of New Zealand debit card and credit customers per month. BNZ.MarketView covers transactions undertaken with about 60,000 retailers and with a monthly value of approximately $0.5 billion. BNZ.MarketView data – which can be analysed in multiple ways, including store type and area – is available for purchase by retailers and other organisations that are seeking the latest and fastest data. The product is available only to Bank of New Zealand business customers.
Enquires to Bank of New Zealand, ph 0800 737 774. http://www.bnz.marketview.co.nz.