Splurging On Essentials

• According to Kiwibank electronic card data, total dollars spent lifted 5.6% over the September quarter compared to last year’s levels. However, the volume of transactions declined 5.2%. Fuelled by historically low interest rates and “lockdown savings”, consumer spending was strongest in 2022. Since then, spending has gently corrected lower.
• Beneath the headline, households are clearly prioritising costlier essential goods and services over durables – despite the discounted prices. Both the value and volume of transactions made at supermarkets increased from last year. But the growth in dollars spent is double the pace of growth in the number of transactions. With food prices up 5% from last year, it’s clear that a price effect is still working behind the scenes. Similarly, the value of household utility-related transactions have also tracked higher.
• Household balance sheets have come under significant pressure over the last few years. Financial conditions have been tight, with high consumer prices and expensive credit. Household disposable incomes have been squeezed. And as households have cut back on spending, it’s been discretionary items culled first. More discretionary goods and services are getting squeezed. Although, encouraging signs are emerging within housing-related spend.
• Despite continued softness in discretionary spending, retailers remain optimistic for a pickup in activity over the fast-approaching holiday season. According to NZIER’s latest Quarterly Survey of Business Opinion, nearly a third of retailors expect an improvement in economic conditions over the current December quarter. Major upcoming spending festivities, from Black Friday and Cyber Monday to Christmas and Boxing Day, are no doubt fuelling these hopes. And it’s a hope we’re holding out for too. Households are still grappling with a number of challenges, like the rising costs of essentials and lingering job insecurity. But the recent falls in interest rates should help free up disposable incomes and support a recovery in consumption.

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