Retail spending levels rose 0.9% in the December quarter. That was slightly ahead of forecast. The details of today’s report point to a firming in discretionary spending appetites.
December quarter retail sales (volume of goods sold): +0.9% (Prev: flat)
- Westpac f/c: +0.7%, Market: +0.5%
December quarter nominal retail sales: +1.4% (Prev: -0.5%)
New Zealanders dusted off their credit cards and hit the malls over the holidays.
Retail spending rose a solid 0.9% over the December quarter. That was slightly ahead of our forecast for a 0.7% rise.
The December quarter increase follows soft spending earlier in the year, leaving spending around the same levels as they were this time last year.
The rise in spending over the past few months was due to increased spending in discretionary areas. That includes a lift in spending on household durables, like electronics (up 5%) and furnishings (up 4%). We also saw increased spending in department stores (up 4%) and on clothing (up 2%), as well as a solid rise in spending in the hospitality sector.
The widespread increase in spending in discretionary areas points to a firming in households’ spending appetites. That’s consistent with the reduced pressure on households’ finances as inflation and interest rates have fallen, as well as the rise in consumer confidence in recent months.
We did see spending on groceries dropping back, but in part that will reflect that people have chosen to spend more on dining out.
What’s the outlook for the year ahead?
We expect spending levels will continue trending higher over the coming year. Interest rates have continued to drop. Importantly, the full impact of those declines is yet to be felt, as many mortgages are still on the relatively high interest rates from recent years. However, over the next six months, around half of all mortgages will come up for re-fixing, and many borrowers will have the opportunity to re-fix at lower rates. That will give spending a boost, especially through the second half of the year.
While the trend in spending over 2025 is likely to be to the upside, a couple of factors will limit the rise. First, unemployment is likely to rise from 5.1% currently to around 5.4%. In addition, inflation is likely to pick up over the coming year, with the NZ dollar likely to push up the price of some imported goods.
Even with the above headwinds, spending is likely to be firmer over 2025. That will be welcome news for many retailers and hospitality businesses who have faced tough trading conditions over the past couple of years.
Implications for GDP growth
We’re forecasting a 0.3% rise in GDP over the December quarter. Today’s result was a little ahead of our expectations. However, we’ll take a closer look at how our forecast for GDP growth is shaping up over the next couple of weeks as additional data on December quarter activity is released.
