Retail card spending falls in December as business confidence plummets and economist gives sobering prediction

Retail card spending fell in December for the first time in nine months as business confidence plummets and a prominent economist warns New Zealand is "pretty much" already in recession.

People heading back to work after their holiday break are being met with gloomy economic news as recently released data shows retail card spending fell $166 million in December compared with November.

The seasonally adjusted data, which was released by Statistics New Zealand on Wednesday, shows spending was down 2.5 percent in the last month of 2022. 

Business performance manager Ricky Ho said it is a "large" drop for a December month and the first in nine months. 

While December retail card spending rose in actual terms, the increase was smaller than normal for past Decembers. After adjusting for normal seasonal patterns, this resulted in a decrease. 

Seasonal adjustment is the process of estimating and removing seasonal effects to allow comparison of data for adjacent months. 

Spending fell across five of the six retail industries, with the largest fall being from sales of durables such as furniture, hardware and appliances  – down $95 million (5.7 percent). Spending on fuel and apparel (clothes and shoes) also fell, down $26 million (4.3 percent) and $17 million (4.7 percent) respectively.

The only spending category that saw an increase was groceries and liquor which increased by $39 million (1.5 percent).

The total value of electronic card spending, including services and non-retail, fell $104 million (1.2 percent). 

In actual terms, retail card spending was $8.1 billion, up 4.8 percent ($375 million) from December 2021.

December quarter retail card spending increases

Seasonally adjusted retail spending increased by $110 million (0.6 percent) in the December quarter, following a 1.7 percent rise in the September 2022 quarter.

“Spending on groceries and liquor was the largest contributor to the rise in retail card spending in the December quarter,” Ho said.

Actual retail card spending was $22 billion in the December quarter, up 9.0 percent from the December 2021 quarter. Spending on hospitality had the largest increase, up $1.0 billion (37 percent) compared with the previous December quarter.

“As COVID restrictions eased over the last year, people were able to get out and about to cafes and bars, and to resume travelling,” Ho said.

Business confidence plummets as economist warns NZ  "pretty much" already in recession 

The drop in spending in December comes as the country grapples with sky-high inflation and increasing prices.

The latest data, for the September 2022 quarter, had inflation at 7.2 percent annually after a 7.3 percent increase in the previous quarter. 

High inflation has pushed up the cost of living with the Reserve Bank of New Zealand (RBNZ) hiking the Official Cash Rate from 0.25 percent in August 2021 to 4.25 percent in December 2022 with further increases expected in 2023. 

While the drop in spending will come as welcome news to RBNZ Governor Adrian Orr, who last year admitted to 'deliberately' engineering a recession to dampen inflation, it won't be for New Zealand businesses. 

Chilling data from an NZIER survey released on Tuesday, showed business confidence has plummeted with a net 73 percent of businesses expecting economic conditions to deteriorate over the coming month.

That measure of business sentiment is the weakest ever since the NZIER Quarterly Survey of Business Opinion (QSBO) began in 1961. It's worse than the 42 percent recorded in the previous survey. 

The survey results also reveal a net 13 percent of firms reported a decline in activity over the past quarter - the weakest since June 2020 when the impact of the first COVID-19 lockdown was seen.

The survey results highlight businesses "have become much more cautious and are now looking to reduce staff numbers and pare back on investment plans", NZIER said.

And businesses aren't the only ones feeling gloomy about New Zealand's economic situation. Prominent economist Shamubeel Eaqub told Newshub Late on Tuesday New Zealand is "pretty much" already in recession.

"Already, before Christmas, we had seen that business and consumer confidence was extremely low," Eaqub said. 

"We saw through the Christmas period that people weren't spending quite as much as we would have expected them to, given how much pent-up demand there was in the lead-up to Christmas."

He said 2023 will without a doubt be tough for many financially as mortgage rates increase and companies look to reduce staff. 

But Eaqab said the tough economic situation should see inflation begin to drop.