Household spending has cooled and despite signs of a recent improvement is likely to continue to slow in the future.
New Zealand has been in the grip of a slowdown in consumer spending since mid-2016. However, there have been recent signs of a pickup, mostly likely due to recent increases in government social payments to low income families, super annuitants and beneficiaries.
With the housing market slowing and net inward migration pulling back, it is likely that the pace of household spending will continue to weaken in coming years.
The pace and timing of this spending slowdown, however, is likely to differ by region. Those that have strongly performing housing markets, faster growing populations, and successful export industries (including tourism) are likely to see stronger spending growth for a longer period of time. Those that don’t are likely to see weaker spending growth.
House prices have a strong bearing on consumer spending. In some regions, the dynamics in the housing market are already well set. Auckland and Canterbury are good examples of this, with house prices in both regions either flat or falling.
However, this is not the case in all regions. Rural regions like Taranaki/Manawatu-Whanganui, for example, have actually seen accelerating prices, while Gisborne/Hawkes Bay and Otago have also been standouts, posting near to double-digit growth house prices. Meanwhile, Wellington, has easily outperformed its metropolitan counterparts.
These regions are also experiencing stronger population growth than they used to. This, together with rising house prices, is likely to be supporting spending in these regions. Wellington, is likely to be further boosted by increased spending by the Government on the public service. Not so for Auckland and Canterbury, where population growth has dropped due to a larger number of temporary international migrants heading home and some Kiwis moving within the country.
Rural regions should also be benefitting from still elevated commodity prices and a slightly weaker New Zealand dollar. Higher production volumes will also be lifting farm-gate incomes, and as a consequence, rural spending.
Most regions in New Zealand will be benefitting from an increase in tourist arrivals, although signs of a slowdown are becoming increasingly evident. Tourism spending continues to grow strongly in traditional hotspots like Otago and Southland as well as in less traditional tourist destinations, such as the Waikato and Wellington. However, in places like Nelson/Marlborough/West Coast and Gisborne/Hawkes Bay, tourism isn’t performing quite as well.
Consumer spending outside Auckland and Canterbury may stay relatively strong for a while yet. But for businesses in these regions it is very important to understand that today’s economic exuberance has partly been driven by a burst of population growth and rising house prices that will not persist forever. When population growth slows construction activity in these regions will drop away, meaning fewer jobs locally. And when house prices stop rising at a double-digit pace, the wind currently in consumers’ sails will drop. Enjoy it while it lasts, but it will not last forever.