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ASB Quickview: June 2019 NZ Card Spending

Contributor:
Fuseworks Media
Fuseworks Media

Retail card spending remained soft in June, weighed by lower spending on fuel, but supported by firming apparel and durable spending.

Growth rates have been volatile of late, but the trend in retail spending is slowing.

We expect a moderate rate of consumer spending growth going forward. The OCR looks set to move lower and we expect 50bps of cuts by the end of the year.

Implications 

June card spending was considerably weaker than market expectations. As expected, the decline in fuel prices over the month looks to have prompted a rebound in discretionary spending, but this was only in fits and starts. Despite this morning’s heroics by the Black Caps, we expect moderate rates of consumer spending growth going forward, with still-low inflation and slower growth momentum expected to result in 50bps of OCR cuts by the end of the year.

Details June retail electronic card spending was flat in June, considerably weaker than market expectations (+0.7% mom).

Core spending (ex-fuel and vehicle-related) fared a little better, rising 0.4% mom, but this was considerably weaker than we had expected as it followed the soft May. Annual retail spending growth slowed to 1.1% for retail, the lowest since March, along with core retail (3.2% yoy).

The June month saw fuel prices decline (down around 4% according to our estimates), which in turn saw a decline in fuel spending (down 4.3% in June and down close to 12% compared to June 2018). This looks to have supported some pockets of discretionary spending, with solid monthly increases for durables (1.7% mom) and apparel (2.2% mom) spending after their May declines. Consistent with June falls in food prices, consumable spending dropped 0.3% mom.

Retail card spending in the June quarter rose just 0.2% qoq (core +0.2% qoq), somewhat weaker than the stronger readings in Q1 (retail +0.8% qoq, core 1.8% qoq). The see-saw pattern of quarterly outturns continued. Given the loose fit between ECT outturns and those for GDP and retail sales, the market relevance of today’s outturn is limited.

We expect a moderate rate of consumer spending growth. Supporting NZ consumer demand are historically-low retail borrowing rates and the Government’s Families Package, and sales of cricketing merchandise, hospitality and coffee are likely to feel the tailwinds posed by the strong performance of the Black Caps! Despite strong producer income growth and more government policy support, we expect still-low wage inflation and low housing turnover to contain consumer spending appetites and prevent a large retail spend-up. The OCR looks set to move lower to support the growth outlook and we expect 50bps of cuts with the OCR ending 2019 at 1%.

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