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Kiwibank economists have been tracking our spending - and we are still doing our best to make up for the lack of tourist dollars

Kiwibank economists have been tracking our spending - and we are still doing our best to make up for the lack of tourist dollars

The borders may be closed. The tourists are not here. But WE are keeping our wallets open and the wheels of the economy turning.

The Kiwibank economics team - chief economist Jarrod Kerr, senior economist Jeremy Couchman and economist Mary Jo Vergara - have been tracking the spending patterns of Kiwis again through Kiwibank customers' transactional data.

Once again the levels of spending continue to defy expectations of what might happen when we all went into lockdown last March.

In the event, we came out of lockdown in the mood to spend and that mood has stayed with us.

The Kiwibank spending data for the December quarter show that spending was up 6% last quarter.

"It doesn’t sound like much, but it does follow a massive 27% spike in the September quarter," the economists say.

"On an annual basis, spending is up a whopping 47.5%."

Kerr, Couchman and Vergara say the holiday season helped to keep the momentum going.

"Retail spend was strong during the December quarter, with many of us getting our Christmas shopping done early. Spending on alcohol and Meat was notably high, up a combined 22% quarter-on-quarter. Please note, Kiwibank’s strong domestic data may also be inflated by gains in market share across debit and credit cards. That’s a home-grown problem we want. We have also seen a surge in the use of cards over cash."

The rampant housing market has underpinned much of the strength in household-related spending.

"A reduction in overseas holidays also means there’s money left in the jar for revamping the home. Demand is especially strong for durable items including household contents and furnishings. Spend was up 24% in the December quarter and up 92% on an annual basis. The holiday break also freed up time for repairs and renovations around the home. DIY spending continues to outpace 2019 levels and is up an annual rate of 91%."

The economists note that with our border still closed, we’re holidaying at home.

They say despite prices for domestic accommodation returning to pre-covid levels, "our data show no signs of a slow down in spending".

"The value of Kiwibank transactions for hospitality and accommodation were up 71% and 149% respectively on the 2019 December quarter. Strong domestic tourist flows suggest Kiwi are helping to keep the 5% of our economy reliant on foreign tourists still running. But it’s hard to make up for the lack of foreign tourists. Official StatsNZ data reveal that spending in these areas is down 3.7%.  A vaccine should help drive the recovery in the tourist sector." 

The economists stress that it's important to note that Kiwibank transactional data does not include foreign tourist spending.

"So, while overall spending could be flat, or down, on the year, we've seen a surge in kiwi-related domestic spending."

The Kiwibank economists note that supply chain issues caused by bottlenecks at our major ports made it tough for many retailers to ensure shelves were stocked for Christmas. Recent media reports suggested that supply chain issues may get worse in the coming months too, impacting March quarter growth.

"But these shipping delays may have a lagged effect on spending. Recent behaviour clearly shows no loss of demand. So once the shelves are full again, those on the waitlist can proceed to checkout."

The economists note that everybody is now on tenterhooks awaiting updates on the latest Covid community cases.

"We’re hoping no clusters are forming. Because clusters mean lockdowns. And our vaccines are still in transit. 

"But should another lockdown take place, the hit to the economy may not be as severe. We’ve adapted to living with alert levels. 

"In the meantime, a sneak peak at the data for January suggests another strong month. The America’s cup might see particular strength in the Auckland’s hospitality and accommodation scene."

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39 Comments

And KB are offering a 1% deal on balance transfers for 12 months!
Which is the best deal on CC across the banks atm.

"On an annual basis, spending is up a whopping 47.5%."

Is QE one and done?

Spending magically created housing debt and covid money on nothing productive. Awesome.

"The rampant housing market has underpinned much of the strength in household-related spending" - where is the evidence for this statement? Surely it's due to the inability to spend on overseas travel last year and for the foreseeable future?

Albert2020,
You are correct. There is no evidence. The wage subsidy managed by the Government (and not the Reserve Bank) was what kept money in the electronic wallets of Kiwis. That money was then spent on items that have a high monetary multiplier, whereas when that money is spent on overseas travel there is no multiplier effect. The fact that the Government did not predict this is yet another illustration of how Treasury economists struggle when behaviours change such that their models based on historical behaviours no longer work in a predictive mode.
KeithW

Keith... am surprised at this comment as I have agreed with all your previous posts. IMO the gigantic artificial stimulation of the economy through QE, wage subsidy etc has been the main driver. And QE was always going to be likely to inflate assets including houses (which I think was actually one of the Govts stated intentions) so that we feel wealthy and spend. Looks like it happened as they planned although the asset price inflation and spending were likely higher than expected.
Yes, I think the money spent here rather than overseas had a small effect but minimal compared to the inpouring of money last year. Also, as Kiwis tick locations off their bucket lists domestic tourism is likely to wane. Totally agree with your comment on econs.

Karl
In my opinion it is the wage subsidies that have kept the economy going, both directly and through the multiplier effects.
In contrast, the QE effect has been to lower interest rates and that has driven the big increase in house prices. Lower interest rates has meant that holders of term deposits have become reluctant property investors. This still has some way to run.
To further clarify, I am a supporter of the wage subsidies for both economic and social reasons. I am sure there were a few rorts, but in the big picture the benefits were large. The alternative was a catastrophe.
In contrast, the QE has in my opinion been excessive. In my opinion more of the Treasury bonds should have been left in the market (i.e. less QE). Looked at in isolation, the unwanted consequential of this would have been that the exchange rate may have risen further as overseas funds flooded in. However, that could have been controlled by requiring banks to fund most of their local lending from local funds - that is easily done.
KeithW

It would be interesting to know how much of the liquidity created by RBNZ purchase of financial assets (QE) found its way directly into real estate investments and other financial assets (e.g. shares, which have clearly seen a massive QE-assisted boost). However, I still think that low interest rates, increased rents, and high investor confidence are the dominant drivers of house price growth

I also agree that commentators are massively under-estimating the impact of fiscal stimulus on the economy - and the high multiplier-effect associated with where that stimulus landed. The wage subsidy and benefit increases are obvious, but worth noting that motels across the country are still full of thousands of people and families that were housed quickly at the start of lockdown (because they couldn't lockdown in sheds, tents, outhouses, cars etc). The Government has also significantly boosted funding in direct financial assistance and NGOs (again, significant multiplier effect).

Keith
It seems we are on the same page here. My biggest problem with QE is that it (mainly) flowed into assets (property and shares) and increased the wealth gap. My main disagreement with your first post was really just that money being spent here rather than overseas was having a major effect on spending. IMO the wage subsidy and especially QE have both had a far bigger effect.

Our overseas holidays cost $30,000 - $45,00, no show of spending that amount in NZ. In the last 6 months we have spent 7 days around Auckland and 2 trips to the SI, we have maybe spent $6000

The "wealth effect" is a well-known and understood phenomenon. It's in essence what Ardern was alluding to when she said that Kiwis "expect" house prices to keep going up - if they don't, we feel poorer and stop spending.

....when in reality "The Wealth Effect" is making us poorer.
We aren't earning more from our day-jobs (if we still have one!) and saving/spending (net wealth creation) we are borrowing more and spending (net wealth destruction) in the hope that wage inflation will 'repay' the net wealth loss. (inflate away the debt).
In a World of job insecurity, destruction and competition, good luck with that!

Right, but the wealth effect is a psychological phenomenon, not an economic one.

You reckon?
Real word debt (borrowing to spend) against mythical value (the asset 'value' has gone up! Borrow against it) is physiological until it becomes very economic; very real.
No wealth of any kind has been created until the asset has been realised (sold, in other words). But that debt? It's real and fixed, no matter what. And time value is all that's missing from the mirage.
Ask anyone caught long GameStop this morning.....

Indeed...basically our current route to prosperity (in practice) is ever increasing government handouts for people to spend. Subsidies, QE, etc.

Only to good deserving folk who own property though, ideally, otherwise it's abhorrent welfarism.

Is there actually evidence to suggest economic activity is actually enhanced by increasing house prices? I remember Audaxes posting literature to suggest this wasn’t the case?

Nothing is ever clear cut in economics but yes, there's enough evidence to suggest that the wealth effect exists. That's not to say that it's rational behaviour, but then again we're not a particularly rational species...

It is not a wealth "effect" its an income effect from lower outgoings !

Reddell had a look at it in an article and found evidence for the wealth effect isn't there: https://croakingcassandra.com/2020/10/13/housing-the-reserve-bank-and-in...

It's interesting how the economy is doing. Perhaps all the things that are wrecking NZ - mass immigration, mass tourism, mass international education - that we were told we "had" to have for the sake of the economy, aren't actually worth having.

And anyone who questioned their real value were villified in no uncertain terms.

Infact still are.

Sparrow,
Yes, at the very least the Croaking Cassandra (Reddell) blog that you refer to provides evidence that at least one former RB economist who also happens to be an independent thinker is skeptical of the evidence. Reddell has a new post out three days ago giving his most recent thoughts on where monetary policy needs to go. I see things somewhat differently to Reddell, but I think his latest post is a useful contribution to the debate. Among other things, he acknowledges the challenges when citizens behave in ways that are different to the ways in which the models say they should behave, and the puzzles this creates.
KeithW

Is the current government playing down the current soaring house prices?

Is general public more happy to see a booming housing market than a deteriorating one?

Yes and yes.

Yep people spending money they don't have = more debt. What could possibly go wrong ? Maybe this government is not so stupid after all because rising house prices give people a false sense of both wealth and security and they go out and spend.

Which is a great way to kick the can down the road...... if you couldn't care less about the younger generation (or can't understand the repercussions of your actions).

Apparently we don't, because we're happy to live beyond our own means at their expense.

The younger generation will inherit the wealth so don’t worry about them. Or they can lose it..

Great start to the year for investors but a shame for those looking to get into the market. Those who were able to think for themselves and make the smart call to purchase in the last 18 months big winners. Unfortunate for Mike Kirk and his disciples. The thought leaders of that echo chamber rarely pop up any more- probably crying over lost money!

Hello comrade

I am not aware of having any disciples!
And your sentiments retain the implied belief that house pries cannot go sideways or decline.
Is that your position? If so, over what time frame are you implying that?
Over period of last 28 years, prices in Auckland have risen by about 73 -83% per decade, regardless of what year you start in.
Not sure for rest of NZ.
It is established economic fact that QE makes house prices rise, on top of interest rate increases.
I must repay, sorry, that ALL commentators virtually, said in mid 2020, that NZ house prices would fall by xmas and ALL were wrong.
Some admit to this and some do not. I did

You are not, good sir, a Minister in the Ashley Church?

To me this is utterly predictable.
A couple of days ago, Interest had an article showing how much spare cash OO had due to interest rate cuts in last 18 months. Then yesterday Interest had an article showing that OO are not moving much (and doing place up). Combine those 2 factors and then look at what spending on hh goods is doing in tables within the above article. PLUS not spending money abroad and spending much more on durable goods instead of services. Which is easier to do because you just order on internet. So, the surge is related to booing housing market, but not due to price rises but rather than factors I just repeated. This is what happens when banks give shit loads of dosh to folk who already have it, to leverage property purchases AND government ladles on huge fiscal stimulus. This combo has not been seen in NZ (or elsewhere except in China) in last 20 years. Mania continues for a while, til buyers dry up and stock markets recoil, which could be a few months yet, despite evident manic silliness on Wall Street last week or so.

Will this impact on spending continue as inflation overtakes wage rises?
ie then real disposable income will be negative.
So, watch inflation.

Mike,
I am watching inflation closely. I have some confidence that inflation is going to rear its ugly head, but estimating the specific timing is more tricky.
If public sector wages are allowed to then rise in response, then it is 'all on'.
KeithW

The real estate industry is a key economic driver of this country and has the capacity to lift the entire island nation out of recession and stagnation. Imagine the number of jobs created and sustained by this industry alone and I'm not far fetched to say that it alone has the power to determine the success of the island nation.

Trying to kill it is akin to committing economic suicide. If the idea is "if I can't have it, neither can you" approach to the booming idustry, be prepared for mass poverty in a scale unseen in documented history of New Zealand.

Go for it if that's what you want.

But the jobs relate to the building industry rather than house price inflation.
KeithW

CWBW... most of us just probably want agents to get a fair remuneration for their level of (pretty limited) skill and the hours they work. We also would just like the big agencies to stop colluding on fees and charge something resembling a fair price for their service. They do the same job as other agents and agencies outside NZ so why should they expect to be paid so much more?

Mismanagement of debt. Onwards and upwards. Reward the speculative. Punish the conservative. Wow.

Two points" Firstly. if you intend to trade up at some point in the future, then rising prices are working against you. Secondly the government stimulus is totally unsustainable and appears to be totally unproductive. I heard through the grapevine that 47,000 beneficiaries were, through a loophole, able to claim COVID relief intended for self employed workers. The amount of money in question was 280 million dollars. It's all a bit hush hush and the government has specifically asked that this money not be clawed back. What a waste, tip of the iceberg though.