12 Sep 2012

Debt, jobs worries constrain spending - economist

7:11 am on 12 September 2012

Infometrics economist Matt Nolan says a patchy labour market and a continued focus on repaying debt are likely to constrain growth in consumer spending, an economist predicts.

Electronic card transactions, which include debit, credit and charge cards, shows retail spending rose a seasonally-adjusted 3% in August, the biggest increase in nearly a decade.

Higher fuel prices accounted for most of that, but Mr Nolan says rising levels of spending on eating out and holidays shows people are feeling more confident.

Mr Nolan says spending came out of current income rather than borrowing and lifts in spending on eating out and holidays shows people are feeling more confident.

Excluding fuel and car sales, core retail spending rose 1% and ASB economist Christina Leung says households appear more confident about their lot.

"The gradual improvement we saw in retail sales over the first half of the year is continuing," Mr Nolan said.

"There was a surprisingly strong lift in hospitality spending and we also saw a bit of a pick-up in consumables ... which is an encouraging sign.

"When households are feeling comfortable enough to go and spend on holidays and to spend on meals out, it shows that they are actually feeling more comfortable about their financial situation, which is consistent with the confidence indicators we are starting to see."

But Mr Nolan said a modest recovery in housing will cap the pace of spending growth.

And job losses at big employers like Solid Energy, New Zealand Aluminium Smelters and Norske Skog are highlighting deterioration in the global economy.

"Unemployment's higher, the news is till very negative and there's a lot of concerns about what's going on in Europe, what's going on in China, and what's going on in Australia," Mr Nolans said.

"Not until we really see the unemployment rate falling and people see a lot of positive news from overseas that spending will really pick up," he said.