Comment: The economy is finding its feet again after an autumn wobble. But what about the beleaguered NZ consumer?
We’ve rummaged through the retail aspects of the past week’s data to get a feel for the spending pulse in the aftermath of the April/May fuel price spikes.
1. July electronic card spending
The 1 percent month-on-month bounce in card spending from June to July was encouraging. It reversed most of the June decline, returning the value of monthly spending back to around the highs for the year (all seasonally adjusted).
There was a strong element of July fuel price declines breathing a little bit of life back into discretionary spending. Indicative of such, the hospitality and apparel categories posted the strongest monthly gains of about 3 percent. Both nonetheless remain about 2 percent below (February) levels prevailing prior to the fuel price shock.
Stepping back, the uptrend in monthly card spend, now just over a year old, remains intact. But you certainly wouldn’t describe it as vigorous, particularly when viewed on a per-capita basis.
Spending as of July is only just getting within cooee of the peak back in August 2023. These data are simple dollar values. Adjusting for inflation produces an even flatter profile.
2. July Performance of Services Index
July’s Performance of Services Index, also released on Monday, featured a shiny veneer but slightly scratchier details. The headline index held above the 50.0 level indicating expansion. That’s a feat achieved in only three months so far this year including, encouragingly, the past two consecutively.
But at least part of the recent improvement appears to reflect a build-up of inventories, warranting some caution in extrapolating the recent better numbers. Some of the more cyclical and consumer-focused subcomponents – retail trade, accommodation and cafes/restaurants, and cultural and recreational – also remain well below 50.0, and little changed on the six-month average.
3. July BNZ card spending
Our own card spending data corroborates evidence of a steadying in the NZ spending pulse. Topline (nominal) spending growth rose over June and July, having drooped a little prior.
But it’s among the subcategories where things have been more interesting. We’ve been eyeing the slow and steady rise in ‘discretionary and hobby’ spending growth. That’s occurred, notably, as growth in ‘utilities and government charges’ has gone the other way. The latter is likely (mostly) a price story. Price rises in utilities and government continue, but peak inflation in these categories appears to be passing.
4. June tourism and long-term net migration
Tourism spending has been an important prop for the retail sector, particularly in the South Island. Figures released last Friday showed tourist arrivals into South Island airports hit a fresh record high in the year to June. NZ-wide arrivals have climbed to 94 percent of pre-Covid levels.
It’s true the pace of recovery has slowed in recent months, perhaps indicative of some consumer wariness after the fuel price shock and higher airfares. But we retain a positive underlying view.
The recent step back up in Chinese tourist numbers (75 percent of pre-Covid levels) is certainly helpful, particularly if the buoyancy in those coming from Australia (105 percent of pre-Covid levels) cools as the Australian economy enters a softer patch.
Population growth is another important driver of retail spending. But, in contrast to the updrift in tourist arrivals, the lift in net migrant arrivals we’ve previously talked about has flattened. Indeed, a chunk of it has been revised out of existence.
Last week’s June data put annual net migration at an estimated 17,600. That’s above the 9500 cycle lows of 2025 but is still well below the 30,000 long-run average. What’s more, and as the chart shows, the tendency of Stats NZ to revise down prior estimates of net migration has continued. It’s getting much harder to eyeball an uptrend in the monthly numbers.
Overall
Pulling the threads together, it’s all a bit mixed and uneven, but there’s enough in the latest data to support the idea that a shaky underlying recovery in spending activity continues.
Fuel price volatility does cast a pall over the outlook and makes it difficult to distil trend from noise month to month. Fuel price declines may have provided a leg-up over June and July, but who knows what happens from here. Fuel prices have been rising again more recently and this week’s lift in oil prices risks that continuing.
Consumers also continue to face challenging conditions from high inflation, a tough jobs market, flat house prices, and rising mortgage rates. All of which are likely to stick around this year.
Our view is thus that positive but sub-par consumer spending growth will remain a feature of the recovery until inflation and unemployment, in particular, start falling.
The two are sometimes combined into what is cheerily termed the ‘misery index’. With annual inflation at 4.1 percent and the unemployment rate at 5.6 percent, the index currently yields an uncomfortable 9.7 percent – the highest since mid-2023. Inverting the index, per the chart, reveals an unsurprising correlation with consumer confidence.
Based on our forecasts for inflation and unemployment, the misery index has peaked. Assuming we don’t get any more nasty surprises, the coming 12 months is shaping up as less ‘miserable’ for consumers.
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