Kiwi households nervous but still happy to shop

New Zealand households have become increasingly nervous about the economy but they remain in the mood to spend, Westpac chief economist Dominick Stephens says.

The latest consumer confidence report revealed the proportion of households expecting good economic times over the next five years had dropped to its lowest level since 1991. And it followed a barrage of bad news in the early part of this year, he said.

While households had become more nervous about the general economic outlook, they remained more upbeat about their personal economic situation. The proportion of households expecting to be better off financially in a year had increased.

‘‘Households remain in the mood to spend, with spending on electronic cards chugging along at a healthy annual rate of 5% in the early part of the year.''

A growing proportion of households were reporting they had increased their spending on entertainment and eating out. Also, the number of households thinking it was a good time to purchase a major household item had continued to climb, Mr Stephens said.

Helping to support the appetite for spending had been the growth in the purchasing power of households and that could be surprising given nominal wage growth had lingered at low levels since the financial crisis.

However, with consumer price inflation running at the lowest level seen in more than a decade, the limited wage increases households had received had been stretching much further, he said.

In the coming year, lower petrol prices would put about $900 million back into household pockets compared to 2015. Adjusting for changes in the cost of living, real wage growth was near a 15-year high, according to the Westpac figures.

Low borrowing rates had also boosted the purchasing power of households, making it attractive for households to purchase larger items, Mr Stephens said.

When asked what they would do with a cash windfall, households reported they were more likely to spend it than pay down debt. In contrast, the proportion of households indicating they would use a cash windfall to pay down debt was only just above record lows.

Reinforcing the continued strong growth in the economy's demand base were record levels of net immigration. On an annual basis, net immigration rose to 67,390 in February and it now looked likely it would surpass 70,000 by June. That would take population growth to its fastest pace since 1974, he said.

For businesses, growth in the economy's demand base was resulting in more bodies in stores and was providing a buffer from the problems hitting the economy. For individual households, the economic environment would feel much different with per capita economic growth not much above zero.

While there were a range of factors supporting spending, there were some offsetting areas such as lower commodity prices already weighing on incomes in rural communities. Recent discussions in rural areas had highlighted the lower prices had passed through to reductions in spending in associated areas and that was likely to be felt through the economy more widely, Mr Stephens said.

Although spending appetites remained healthy, one area to keep an eye on was household debt levels. Following the financial crisis, there was a period of balance sheet consolidation among households.

But since 2012, households' financial liabilities had been climbing and by the end of last year they had reached 162% of households' annual disposable income - including debt on investment housing.

That was higher than pre-financial crisis peaks, with much of the increase in debt secured on housing, he said.

 


At a glance

•Household spending accounts for 60% of economic activity

•Lower petrol prices will put $900 million back into household pockets compared to 2015

•Lower interest rates boost spending power of households

•Debt levels continue to rise, most of it in debt-secured housing

 


 

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