11 Jul 2012

Consumer growth of 5% 'sustainable'

7:20 am on 11 July 2012

Westpac senior economist Michael Gordon expects consumer spending to lift in line with what he predicts will be rising incomes.

Official figures released on Tuesday show retail spending with debit and credit cards rose a seasonally-adjusted 0.4% in June, compared with May.

Spending on accomodation, restaurants, and bars all rose, and Mr Gordon says that the growth is part of a continuing trend.

"It think we can expect it to grow broadly in line with household income growth ... in the order of 4% -5% annual growth is probably a sustainable rate".

Spending on accomodation, restaurants, and bars all rose, and Mr Gordon says that the growth is part of a continuing trend.

ASB economist Christina Leung says people are showing more willingness to open their wallets.

"The increase in retail card spending over June is fairly encouraging," she says. "We saw spending increase across a broad range of categories, including consumables, hosptality and durables".

On Monday, separate Paymark figures for June showed use of credit cards jumped 6.6% on the same month in 2011, outpacing growth in debit card spending at 3.9%.

For much of last year, it was the other way round, with credit card use actually declining in some months.

Purse strings being relaxed

New Zealand Institute of Economic Research principal economist Shamubeel Eaqub says consumers are allowing themselves to relax their grasp on the purse strings.

"We went through this period of going from borrowing a lot of money to saving, now that we've built up a bit of a buffer, we're now getting a little bit more comfortable.

However, he says the overall mood of households is one of caution.

The figures also show that discretionary purchasing is increasing, with spending up 13% at clothing stores and 9% at cafes and restaurants.

Mr Eaqub says New Zealanders are noticing a change in economic conditions for the better and that is encouraging a return to a "more comfortable way of life."

But he says cuts in government spending and turbulent conditions in Europe are keeping a check on looser consumer spending.

Senior economist at ANZ, Mark Smith, agrees:

"At the moment there's definitely a tug of war going on. You've got lower petrol prices and an improving housing market consumers though are balancing it off with an increasing sense of caution."

He says the outlook overseas is "very patchy indeed."