Spending on durable household items up 2.5% in March from February as total card spending rises 0.5%, Stats NZ says

The value of credit and eftpos card transactions rose a seasonally adjusted 0.5% in March from February, according to Statistics New Zealand, led by increases in spending on fuel, apparel and durable goods, which includes furniture, hardware and appliance retailing.

On the rise in appliance retailing, ASB economist Christina Leung said there was ancedotal evidence of a surge in TV sales in the Canterbury region as households rushed out to buy a TV before they received their insurance payout.

See the release from Stats NZ:

A mix of rises and falls across industry groups gave a 0.5 percent increase in the total value of electronic card transactions in March 2011. The value of transactions, adjusted for seasonal effects, rose in three industries, but fell in five.

Core retail (which excludes the motor vehicle-related industries) increased by 0.9 percent in March 2011. This increase was driven by the durables industry, which rose 2.5 percent, after a 2.4 percent fall in February 2011. The durables industry includes furniture, hardware, and appliance retailing.

When the two vehicle related-industries are included, the value of transactions in retail increased 1.3 percent in March 2011. One of them, fuel retailing, was up by 2.1 percent and has increased in each of the last eight months.

Transaction values in the two industries that fall outside retail both decreased in March 2011, resulting in an increase of 0.5 percent in the total value of transactions. This follows a similar increase of 0.4 percent in February 2011.

Trends for the value of transactions in the total and retail series have been increasing since January 2009. The trend for core retail has generally been increasing since the series began in October 2002, but it has been easing since August 2010.

This information release includes data for Canterbury. However, as the data is not broken down by region we are not able to separate or estimate the impact of the recent earthquakes on the data.

Here is the reaction from ASB economist Christina Leung:

Card transactions rebounded in March, driven by higher spending on durables and apparel. While there is no regional split provided for this data, we suspect much of this strength is due to Christchurch households replacing damaged appliances and clothing in the wake of the devastating earthquake in late February. Indeed, there have been anecdotes of a surge in TV sales in the region as households rush out to buy a TV before they have received their insurance payout. The 2.5% increase in durables spending more than offsets the 2.4% decline in the previous month.

Meanwhile, spending on fuel increased 2.1% in March. Given petrol prices are estimated to have increased by just over 6% in the month this suggests the volume of fuel sales is falling. The continued rise in petrol prices is likely encouraging consumers to change their behaviour, such as taking public transport instead.

Outside of these areas, spending remains subdued. Spending in the hospitality industry fell -0.1% while that in services fell 1.3%, suggesting households remain cautious in regards to discretionary spending.

Implications:

Today’s data likely reflect the replacement of damaged household items in Christchurch in the wake of the earthquake in late February. A similar story has been seen across the Tasman, with increase in retail sales concentrated on ‘household goods’ and ‘clothing’ following the Queensland floods. Outside of these areas, spending remains subdued suggesting households remain cautious in regards to discretionary spending.

We expect retail spending to recover over the second half of this year, as the recent fall in borrowing costs supports an improvement in consumer confidence and a recovery in economic activity more generally.

And here is the reaction from JP Morgan economist Helan Kevans:

With the monthly retail sales data having been discontinued, the ECT data now is the de facto measure of monthly retail expenditures, although tends to be slightly more volatile from month to month. Card spending on retail items alone were up solidly in March, rising 1.3%m/m, having fallen in the previous month.

A large increase in sales also was recorded in the core measure (which excludes motor vehicle-related industries). Core sales were up 0.9% over the month, thanks to higher spending on durables (+2.5%), including spending on furniture, and appliance retailing. Sales of durable items reached NZ$972 million. Though part of this may reflect re-stocking of household goods in the aftermath of the earthquake in Christchurch, the data is not broken down by region, so the earthquake-effect cannot be estimated. We would assume though that much of the lift will have come from households in Christchurch replacing appliances and other households goods, as well as clothing (+2.3%), in the wake of the February earthquake.

In our view, although credit card spending picked up last month, the household sector is undeniably weak. This weakness is best reflected in firms’ pricing behavior. The October GST hike had a notional impact of 2%q/q on the consumption basket: deducting this pass-through from the headline result implies underlying inflation of just 0.3%q/q. Furthermore, in the aftermath of the recent earthquake, consumer confidence has tumbled. In the March quarter, the Westpac consumer confidence index fell markedly, with confidence toward current and future conditions falling below the 100 threshold, signaling that consumer spending will remain subdued in coming months. Indeed, the retail sector will continue to struggle, owing to the absence of a meaningful recovery in the labour market, and the growing tendency for households to pay down debt, rather than spend.

(Updates with JP Morgan, ASB reactions.)