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Stats NZ retail spending figures showing signs of recovery, but household deleveraging will weigh on growth, ASB says

Stats NZ retail spending figures showing signs of recovery, but household deleveraging will weigh on growth, ASB says

Retail spending strengthened in June as consumers became more confident about the economic outlook, but spending growth will be held back as households continue to pay back high levels of debt, an ASB economist says.

Statistics New Zealand figures released this morning show the seasonally adjusted value of electronic card transactions in the retail industries - a proxy for retail spending - rose 1.2% in June from May. The increase came as spending on fuel fell 3.6%, with that drop made up for with rises on core retail items such as clothing, furniture and appliances.

Core retail spending (which excludes the motor vehicle-related industries) increased 2.1% in June 2011. There were large rises in all industry groupings this month, with durables (up 2.4%) and consumables (up 1.4%) showing the biggest movements, Statistics New Zealand said in a media release.

The durables industry includes furniture, hardware, and appliance retailing; and the consumables industry includes food, liquor, and chemist retailing.

When the two industries outside of retail (services, up 0.8%, and non-retail, down 0.9%) are combined with the 1.2% increase in retail, the total value of electronic card spending increased 0.8%, Stats NZ said.

Trends for the value of transactions in the total and retail series have been increasing since January 2009, and the rate of increase has been strong in recent months. The core retail trend has generally been increasing since the series began in October 2002, and the rate of increase has strengthened since December 2010, Stats NZ said.

ASB economist Christina Leung said spending on apparell was particularly strong in June, up 4.9% as households likely bought winter clothing. The 2.4% rise in durables spending was a "solid increase for the month.

"This is in line with the rebound in consumer confidence seen in recent months, with households noting now as a good time to purchase a major household item," Leung said.

Another solid increase in spending in hospitality suggested the services sector is finally on the road to recovery, with the Rugby World Cup later this year expected to provide a further boost, she said.

"Today’s data point to further recovery in retail spending as consumers become more confident about economic conditions ahead. The recent Q1 retail sales data had pointed to an improvement in household’s discretionary spending, with increases seen in the purchase of big-ticket items. We expect a continued recovery in consumer confidence will underpin further recovery in retail spending over the coming year," Leung said.

"Nonetheless, we expect the pace of recovery will be slow, given the continued high level of household debt. Given the RBNZ has indicated it would like to see the NZ recovery gain a firmer footing before it lifts the OCR, we expect the RBNZ will remain on hold until January 2012," she said.

(Updates with chart)

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FYI from BNZ's Confidence survey (Tony Alexander):

http://tonyalexander.co.nz/topics/surveys/

Our monthly BNZ Confidence Survey has found a slight decrease in the net percent of Weekly Overview readers expecting the economy to improve over the coming year to a net 45% positive from 57% in early June. The result is still very high by the standards of the survey and suggests some good growth in the economy over the coming year.

Results of interest in the survey include a noticeable improvement in sentiment in the legal sector, widespread shortages of residential real estate listings, and more balanced feedback from the retailing sector than the outright pessimism which has dominated for a long time.

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